Increased ER to Pay 401k Plan Expenses

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boglephreak
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Increased ER to Pay 401k Plan Expenses

Post by boglephreak » Wed May 31, 2017 4:18 pm

Wife received a notice yesterday. Her company has changed the way its paying for its 401k plan expenses. Apparently, previously, each mutual fund in the plan had its ER adjusted to pay for the plan expenses. High cost ER were even higher cost to pay plan expenses (as high as an additional .30), whereas index funds basically paid nothing (wife's choice was .00). Going forward, they are changing it so that its basically an annual AUM fee of .15% So, if you have $100,000 in your 401k plan, you pay $150.

I am curious whether (1) this is common; and (2) whether this is a direct result of the flow of money from active investing (where they recouped their plan expenses before) to index investing (where they made basically nothing for plan expenses).

The additional .15% is annoying, but I understand the reasoning although its curious that the index fund's ER is .05 and I am paying .15 for the benefit of buying that index fund.

mhalley
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Re: Increased ER to Pay 401k Plan Expenses

Post by mhalley » Wed May 31, 2017 4:23 pm

Fees for 401ks can be all over the place. Some even charge 1% for index funds.

mhalley
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Re: Increased ER to Pay 401k Plan Expenses

Post by mhalley » Wed May 31, 2017 4:23 pm

Dupe. Post

acunn
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Re: Increased ER to Pay 401k Plan Expenses

Post by acunn » Wed May 31, 2017 4:41 pm

While this is very frustrating, I would be thrilled with that AUM compared with what we are being changed to (1.35) plus whatever ER of the fund that I pick. It could absolutely be worse. I have never researched moving 401K money during employment like I do with my Simple IRA but perhaps some very wise person on this forum can comment if that is possible during employment.

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flamesabers
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Re: Increased ER to Pay 401k Plan Expenses

Post by flamesabers » Wed May 31, 2017 4:44 pm

My impression is 401k plans typically have the admin fees separate from the fund fees. While I'm sure you and your wife enjoyed the 0% fees while it lasted, I'm not surprised in the slightest that your plan's administrator changed its fee structure. If the grand total of fees you're paying is 0.20% I think your wife has a pretty good plan. With my plan I have to pay an admin fee 0.53% in addition to the index fund's ER of 0.04%.

Dottie57
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Re: Increased ER to Pay 401k Plan Expenses

Post by Dottie57 » Wed May 31, 2017 4:49 pm

acunn wrote:While this is very frustrating, I would be thrilled with that AUM compared with what we are being changed to (1.35) plus whatever ER of the fund that I pick. It could absolutely be worse. I have never researched moving 401K money during employment like I do with my Simple IRA but perhaps some very wise person on this forum can comment if that is possible during employment.

Not a wise woman. But I do know the 401k pan is giverned by the Plan Summary document which should be available on the 401k providers web site. My employer's plan summary document specifies I can roll over while employed once I am 59.5. However I have a good plan and won't do that until I am retired.


It really depends on the legal plan summary which governs the 401k.

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boglephreak
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Re: Increased ER to Pay 401k Plan Expenses

Post by boglephreak » Wed May 31, 2017 5:19 pm

acunn wrote:While this is very frustrating, I would be thrilled with that AUM compared with what we are being changed to (1.35) plus whatever ER of the fund that I pick. It could absolutely be worse. I have never researched moving 401K money during employment like I do with my Simple IRA but perhaps some very wise person on this forum can comment if that is possible during employment.
an additional 1.35 is pretty crazy. not sure why it would require that much to manage a plan unless its a very small plan.

acunn
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Re: Increased ER to Pay 401k Plan Expenses

Post by acunn » Wed May 31, 2017 6:03 pm

boglephreak wrote:
acunn wrote:While this is very frustrating, I would be thrilled with that AUM compared with what we are being changed to (1.35) plus whatever ER of the fund that I pick. It could absolutely be worse. I have never researched moving 401K money during employment like I do with my Simple IRA but perhaps some very wise person on this forum can comment if that is possible during employment.
an additional 1.35 is pretty crazy. not sure why it would require that much to manage a plan unless its a very small plan.

Beyond crazy. But that is Edward Jones and thanks to the wonderful help from this forum I do IRA to IRA transfers and avoid this. Sounds like OP can check this possibility in the employer plan documentation (thanks Dottie).

MotoTrojan
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Re: Increased ER to Pay 401k Plan Expenses

Post by MotoTrojan » Wed May 31, 2017 6:07 pm

FWIW I was just researching Employee Fiduciary fee's, as I am looking into some plans for my small workplace, and they only charge a flat 0.08%. I assume it is possible to have the company pay this, or roll it into the funds (I wouldn't care either way honestly, as they have great Vanguard options). So just like with non-401K fees, they vary greatly from company to company.

Johnny Thinwallet
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Re: Increased ER to Pay 401k Plan Expenses

Post by Johnny Thinwallet » Wed May 31, 2017 6:26 pm

My employer plan has an AUM of 0.25%, which is close to about as low as I was able to get it while researching providers a few years ago. Our plan is quite small with assets only around $5 million or so. Previously, our AUM was as high as 0.80% back in 2014 when I decided to make a pitch to senior management to find a better provider. They agreed, we created a committee and our committee settled on a new provider with the 0.25% AUM and re-designed the fund options. Index fund ERs are around 0.05%, and active-managed fund ERs average about 0.65%.

FWIW, I did present Employee Fiduciary as an option since their AUM is 0.08%, but other committee members preferred another option that provided much more hand-holding with investment guidance for employees (we had conducted a survey and determined most employees were clueless with retirement/investment planning, hence the investment guidance piece). I was content with that decision and deemed my pitch "successful enough" since 0.25% was still considerably better than 0.80%.

ERISA Stone
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Re: Increased ER to Pay 401k Plan Expenses

Post by ERISA Stone » Wed May 31, 2017 6:50 pm

MotoTrojan wrote:FWIW I was just researching Employee Fiduciary fee's, as I am looking into some plans for my small workplace, and they only charge a flat 0.08%. I assume it is possible to have the company pay this, or roll it into the funds (I wouldn't care either way honestly, as they have great Vanguard options). So just like with non-401K fees, they vary greatly from company to company.
The .08% pays the custodian MG Trust. EF simply passes it on.

Grogs
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Re: Increased ER to Pay 401k Plan Expenses

Post by Grogs » Wed May 31, 2017 8:13 pm

Our provider charges a flat fee of around $50 per year for each participant. The funds available are Blackrock products with ERs comparable to Vanguard Admiral shares of TSM, TBM, etc. I like the flat fee structure because it means a smaller percentage drag on my 401k each year as I continue to contribute and the balance increases.

MotoTrojan
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Re: Increased ER to Pay 401k Plan Expenses

Post by MotoTrojan » Wed May 31, 2017 8:42 pm

ERISA Stone wrote:
MotoTrojan wrote:FWIW I was just researching Employee Fiduciary fee's, as I am looking into some plans for my small workplace, and they only charge a flat 0.08%. I assume it is possible to have the company pay this, or roll it into the funds (I wouldn't care either way honestly, as they have great Vanguard options). So just like with non-401K fees, they vary greatly from company to company.
The .08% pays the custodian MG Trust. EF simply passes it on.
So how does EF make money?

MotoTrojan
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Re: Increased ER to Pay 401k Plan Expenses

Post by MotoTrojan » Wed May 31, 2017 8:46 pm

Johnny Thinwallet wrote: FWIW, I did present Employee Fiduciary as an option since their AUM is 0.08%, but other committee members preferred another option that provided much more hand-holding with investment guidance for employees (we had conducted a survey and determined most employees were clueless with retirement/investment planning, hence the investment guidance piece). I was content with that decision and deemed my pitch "successful enough" since 0.25% was still considerably better than 0.80%.
Company has 15 now, with plans to expand to 40 by next year. For the near-term at-least, I would happily provide my own input to help people setup a simple 2 or 3-fund portfolio, but I understand some larger firms may make it easier. I suppose a Wiki type page would suffice for the basics (or a link to Bogle...).

ERISA Stone
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Re: Increased ER to Pay 401k Plan Expenses

Post by ERISA Stone » Thu Jun 01, 2017 8:19 am

MotoTrojan wrote:
ERISA Stone wrote:
MotoTrojan wrote:FWIW I was just researching Employee Fiduciary fee's, as I am looking into some plans for my small workplace, and they only charge a flat 0.08%. I assume it is possible to have the company pay this, or roll it into the funds (I wouldn't care either way honestly, as they have great Vanguard options). So just like with non-401K fees, they vary greatly from company to company.
The .08% pays the custodian MG Trust. EF simply passes it on.
So how does EF make money?
I don't know how to answer that question specifically. That's a difficult question with what I perceive to be some low margins. They must make up for it in volume.

The only fees they charge are the $1500 annual fee, plus the participant fee over a certain number. There are also several ad hoc services they provide. Fees from those services can add up quickly if a plan sponsor has a lot of issues.

MotoTrojan
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Re: Increased ER to Pay 401k Plan Expenses

Post by MotoTrojan » Thu Jun 01, 2017 1:19 pm

ERISA Stone wrote:
MotoTrojan wrote:
ERISA Stone wrote:
MotoTrojan wrote:FWIW I was just researching Employee Fiduciary fee's, as I am looking into some plans for my small workplace, and they only charge a flat 0.08%. I assume it is possible to have the company pay this, or roll it into the funds (I wouldn't care either way honestly, as they have great Vanguard options). So just like with non-401K fees, they vary greatly from company to company.
The .08% pays the custodian MG Trust. EF simply passes it on.
So how does EF make money?
I don't know how to answer that question specifically. That's a difficult question with what I perceive to be some low margins. They must make up for it in volume.

The only fees they charge are the $1500 annual fee, plus the participant fee over a certain number. There are also several ad hoc services they provide. Fees from those services can add up quickly if a plan sponsor has a lot of issues.
When I looked at their website pricing model and example price comparisons I only saw a $500 setup fee, and the .08% fee.

ERISA Stone
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Re: Increased ER to Pay 401k Plan Expenses

Post by ERISA Stone » Thu Jun 01, 2017 2:32 pm

MotoTrojan wrote:
ERISA Stone wrote:
MotoTrojan wrote:
ERISA Stone wrote:
MotoTrojan wrote:FWIW I was just researching Employee Fiduciary fee's, as I am looking into some plans for my small workplace, and they only charge a flat 0.08%. I assume it is possible to have the company pay this, or roll it into the funds (I wouldn't care either way honestly, as they have great Vanguard options). So just like with non-401K fees, they vary greatly from company to company.
The .08% pays the custodian MG Trust. EF simply passes it on.
So how does EF make money?
I don't know how to answer that question specifically. That's a difficult question with what I perceive to be some low margins. They must make up for it in volume.

The only fees they charge are the $1500 annual fee, plus the participant fee over a certain number. There are also several ad hoc services they provide. Fees from those services can add up quickly if a plan sponsor has a lot of issues.
When I looked at their website pricing model and example price comparisons I only saw a $500 setup fee, and the .08% fee.
They also have annual administration fees. http://www.employeefiduciary.com/401k-plan-pricing/

MotoTrojan
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Re: Increased ER to Pay 401k Plan Expenses

Post by MotoTrojan » Thu Jun 01, 2017 7:03 pm

ERISA Stone wrote:
MotoTrojan wrote:
ERISA Stone wrote:
MotoTrojan wrote:
ERISA Stone wrote:
The .08% pays the custodian MG Trust. EF simply passes it on.
So how does EF make money?
I don't know how to answer that question specifically. That's a difficult question with what I perceive to be some low margins. They must make up for it in volume.

The only fees they charge are the $1500 annual fee, plus the participant fee over a certain number. There are also several ad hoc services they provide. Fees from those services can add up quickly if a plan sponsor has a lot of issues.
When I looked at their website pricing model and example price comparisons I only saw a $500 setup fee, and the .08% fee.
They also have annual administration fees. http://www.employeefiduciary.com/401k-plan-pricing/
Not sure how I missed that... thank you. Still reasonable for a nice company perk.

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