why do they make 401k fees so trival and hard to understand?

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plake15
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why do they make 401k fees so trival and hard to understand?

Post by plake15 » Tue Nov 13, 2007 2:14 am

I was looking over all my funds in my 401K, Total annual fund operating expenses- fairly straightforward..it includes all fees administrative+operating costs.

for instance Turner midcap growth..one of the most expensive funds in my plan is listed as 1.54% total annual operating fund expenses in big letters at the top..but in very small print at the very bottom...

TURNER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND REIMBURSE FUND EXPENSES
TO KEEP THE FUND'S "NET TOTAL OPERATING EXPENSES" OF THE RETIREMENT CLASS SHARES FROM EXCEEDING 1.40% THROUGH JANUARY 31, 2008.

after going through the funds small print,8 out 12 funds have some kind of fee waive or reimbursement involved..

I never knew 401k or plans did this? is this common place on most funds? one time thing? it's almost like the way they put in such tiny print on the bottom they don;t want you to see it..

shouldn;t they put in the big letters 1.40% total annual operating expenses?operating expenses to me are big and my decison is partly based on fees.

gerry lef
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Post by gerry lef » Wed Nov 14, 2007 12:47 pm

Plake15

Congress has been working on better disclosure with the “Fair Disclosure for Retirement Security Act”
see the this link http://edlabor.house.gov/hearings/fc100407.shtml
and this link http://republicans.edlabor.house.gov/PR ... 265&IID=12

Fee disclosure is a problem with 401(a), (k), 403(b) and/or 457(b) plans.

Here is an analysis of the current 457 plans by providers at my work (Hartford & Valic = annuity products, FTJ = self managed mutual fund account and Nationwide = their mutual funds). I used a large blend index fund to try and get an apples to apples comparison. I did a four fund 60/40 portfolio comparison to show co-workers and HR part of my argument to add a true low cost provider.

hartford style plan fees fund fees total
hart Index large blend 0.65% 0.34% 0.99%
Plan fees = m & e fees + admin costs


valic style plan fees fund fees total
stock index fund large blend 0.80% 0.36% 1.16%
Plan fees = m & e fees + admin costs


ftj style plan fees fund fees total
spartan 500 index large blend 0.85% 0.10% 0.95%
FTJ offers a managed account but the plan fees jump to 125 bps plus the fund fees!


nationwide style plan fees fund fees total
nation 500 index - a large blend 0.80% 0.48% 1.28%


It took me a while to put this together after reviewing plan documents and prospectuses. As you can see the plan fees (the admin fees) over time will take a big chuck out of the total tax deferred returns!

pkcrafter
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Post by pkcrafter » Wed Nov 14, 2007 1:40 pm

Plake15
Total annual fund operating expenses- fairly straightforward..it includes all fees administrative+operating costs.


Unless you know this as an absolute fact, I would doubt it. I've never heard of a 401k plan that did not carry additional fees and other expenses beyond the expense ratios of the funds.

Fees are hard to understand by design. The plan sponsors do not want you to know how much you are really paying. It is not unusual for funds to temporarily reduce management fees. It happens in all funds.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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plake15
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Post by plake15 » Wed Nov 14, 2007 3:52 pm

pkcrafter wrote:Plake15
Total annual fund operating expenses- fairly straightforward..it includes all fees administrative+operating costs.


Unless you know this as an absolute fact, I would doubt it. I've never heard of a 401k plan that did not carry additional fees and other expenses beyond the expense ratios of the funds.

Fees are hard to understand by design. The plan sponsors do not want you to know how much you are really paying. It is not unusual for funds to temporarily reduce management fees. It happens in all funds.

Paul
I actually went thru the online section of each indivudal fund on my 401K site..and it adds up all fees listed..12-1b,administrative,fund expense ratio etc..in a total annual operating expense cost

for instance The fund up above I listed Turner mid-cap
the total is 1.54%(minus that contractual agreement for fund remimbursement)..

it's listed like this....

investment Advisory Fees 0.75%

Distribution (12b-1) Fees 0.25%

Shareholder Servicing Fee
0.53%(1)

TOTAL ANNUAL FUND OPERATING EXPENSES
1.53%

Fee Waivers and Expense Reimbursements 0.13%
----- -----

NET TOTAL OPERATING EXPENSES 1.40%

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dm200
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In my experience,

Post by dm200 » Wed Nov 14, 2007 5:38 pm

the ONLY way to KNOW for sure if funds in your 401k have fees and expenses less than, the same as or greater than a listed fund is to have a fund in your 401k that remains inactive (nothin in and nothing out) for a given period (such as 3 months or one quarter). Then, compare YOUR balance change with the fund advertised return.

dan

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NAVigator
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Post by NAVigator » Wed Nov 14, 2007 6:16 pm

Some 401k providers have excellent statements with every transaction shown, the share price at the time of the transaction, the number of shares, and the balance. I worked for a company for many years that paid all of the expenses, so our statement reflected no fees beyond the built-in ER for the individual fund. That is not the case where I work now, and it is very difficult to determine what the added expenses are for. The fees show up on the quarterly statement under "expenses" or something general like that.

Jerry
"I was born with nothing and I have most of it left."

pkcrafter
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Post by pkcrafter » Wed Nov 14, 2007 7:38 pm

Plake,

Well, it's possible they did include all expenses this way, but it would be very different than other 401k plans. I would still be skeptical. There are normally plan expenses that have nothing to do with the funds. Is this fund Turner mid cap growth, TMGFX, or does the fund not have a ticker symbol?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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plake15
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Post by plake15 » Wed Nov 14, 2007 11:50 pm

pkcrafter wrote:Plake,

Well, it's possible they did include all expenses this way, but it would be very different than other 401k plans. I would still be skeptical. There are normally plan expenses that have nothing to do with the funds. Is this fund Turner mid cap growth, TMGFX, or does the fund not have a ticker symbol?

Paul
yes that the fund,what got me is the contractual agreement for reimbursment or fee wavier..that was not listed on the statement from my 401K...but indivudal each fund and on the website for my 401K has it listed under a star at the bottom where it says net operating expenses may be lower to to contractual remembursement or fee waivers.

thats my most expensive fund TMGFX .0.13% less is not a huge amount,but any lowing of fees is fine by me.

The fund has had some stellar returns so even if the fund has higher nets operating costs than I would like...I can't complain if it can keep up it's pace..

YTD return ...as of 10/31/07 ...27.32%

Turner Midcap Growth
1 year 3 year 5 year 10 year
31.32% 19.32% 19.77% 12.72%

since inception 1996...14.84%

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wlpotts
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Post by wlpotts » Thu Nov 15, 2007 3:25 am

It's apples to oranges to sardines.

Here is an example from one of my 401K fund options and the variable realities that are disclosed to our participants.
Fund ------------------------------------------ Fund Code ------- Gross ER

Russell LifePoints® Growth Strategy R3 Fund --- RALDX --- 1.98%

Explaination of Gross ER-
Total Investment Expense
What is the Total Investment Expense - Gross?

Total Investment Expense Gross is the maximum expense ratio that can be applied to an investment option. This includes expenses and management fees, including 12b-1 fees, administrative fees, and all other asset-based costs incurred by the investment option, except brokerage costs.

What is the Total Investment Expense - Net?

Total Investment Expense Net is the Total Investment Expense Gross expense ratio less any fee waivers, reimbursements or caps. The expenses, as a percentage of net assets, actually borne by the fund. Investment performance results are always net of expense ratios.

I feel this is NEW 2007 required disclosure representaion is the ORANGE as it only represents a "Total Investment Expense Gross is the maximum expense ratio that can be applied to an investment option "This PUBLISHED ER to each fund does NOT represent the total REAL EXPENSE COST to participants or portray the UNDISCLOSED PLAN FEES that are passed on by many deferred compensation company plans to the participant.

The ER number as referenced in the above example is not representative of the ADDITIONAL PARTICIPANT PLAN FEES. If I add my non-disclosed Plan fees (THE SARDINES)to the above example of the published ER, my REAL GROSS EXPENSE would be:

RALDX Fund option-- ER 1.98% + .50% Employee Plan fee +.20% management fee + .22% 12-b1 marketing/admin. fee. This would represent a REAL COST to the participant of 2.90% Gross.

With the same FundsTotal Expense Net( 1.52%) =2.44% total participant expense for this fund option.

I'm very happy to have at least some fund index options that are .41% for our employees.

Respectfully,
Warren P.
Some have it. Some don't. Either way, here I am!

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