Current 401k with Huge Fees, Anything I can do?

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damageprone
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Current 401k with Huge Fees, Anything I can do?

Post by damageprone »

Good afternoon everyone. I've been a long time lurker and I've finally decided to muster up the courage to ask a question. I started a new job about a year ago and am finally eligible for their 401k program through Mass Mutual. After reading the forums here I am now seeing that this plan has very high fees! I've added the funds and Total fee % below (Total fees = Invest Mgmt Fee, 12b-1 Fee, Other Expenses, Total Annual Underlying F.O.E., Program And Administrative Charge).

My plan has a very small amount of participants (I'm guessing <20) which probably explains why the fees are so high. They match 3% and have profit sharing at the end of the year.

I know there are a ton of these types of questions on here but is there anything I can do to minimize the impact? Should I just pick the lowest fee selections? Should I have a different allocation of funds selected?

As far as myself, I plan to max out my contributions for the 401k and Roth IRA for the year.

Thanks in advance!


Listed are the Total fee % (Total fees = Invest Mgmt Fee, 12b-1 Fee, Other Expenses, Total Annual Underlying F.O.E., Program And Administrative Charge) Items in bold are the funds I currently have selected.
AB High Income R AB High Income R
1.92%

American Century Equity Income R American Century Equity Income R
2.14%


American Fds American Mutual R1 American Fds American Mutual R1
2.13%

American Funds Cap Inc Buildr R1 American Funds Cap Inc Buildr R1
2.10%


American Funds Europac Growth R1 American Funds Europac Growth R1
2.31%


BlackRock Equity Dividend R BlackRock Equity Dividend R
1.98%


Franklin Income R Franklin Income R
1.66%

Franklin Small Cap Value R Franklin Small Cap Value R
2.06%

Jpmorgan US Gov Money Mrkt SERV Jpmorgan US Gov Money Mrkt SERV
1.75%

Lord Abbett Fndamental Equity R3 Lord Abbett Fndamental Equity R3
1.93%

Lord Abbett Total Return R3 Lord Abbett Total Return R3
1.68%

MFS Emerging Markets Debt R2 MFS Emerging Markets Debt R2
2.05%

MFS International Value R2 MFS International Value R2
1.96%

MFS Utilities R2 MFS Utilities R2
1.94%

Neuberger Berman Socially Res R3 Neuberger Berman Socially Res R3
1.99%


PIMCO Real Return R PIMCO Real Return R
1.80%

Royce Small­Cap Value R Royce Small­Cap Value R
2.55%

The Hartford Internat'L Sm Co R3 The Hartford Internat'L Sm Co R3
2.37%

Victory Munder Mid­Cap Core Gr R Victory Munder Mid­Cap Core Gr R
2.27%
PFInterest
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Re: Current 401k with Huge Fees, Anything I can do?

Post by PFInterest »

start knocking on doors. those are pretty bad. but yes, just max it out because if/when you leave you will be happy you did.
Avo
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Re: Current 401k with Huge Fees, Anything I can do?

Post by Avo »

I would contribute up to the match, put it all in Franklin income (lowest ER), put all stocks in the Roth.
John Laurens
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Re: Current 401k with Huge Fees, Anything I can do?

Post by John Laurens »

1. Invest up to the match in 401k
2. HSA
3. Roth IRA
4. Taxable account investing
5. Volunteer to help find a better alternative 401k

Those fees are criminal. Out of principle, I wouldn't invest above the match.

Regards,
John
delamer
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Re: Current 401k with Huge Fees, Anything I can do?

Post by delamer »

Would you consider lobbying your management?

https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan

Also from the 401(k) wiki:

Even in a bad 401(k), you should contribute up to the company match. Choose the lowest-cost funds; many bad 401(k)'s have a few lower-cost funds. If you are eligible, additional contributions should usually go into a Roth or Traditional IRA. But unless your 401(k) is very bad and you expect to stay a very long time with the same employer, investing unmatched money in the 401(k) is likely to be better than taxable investing, because you can roll over your 401(k) to a low-cost IRA when you leave.

"A reasonable rule-of-thumb is to consider investing in a taxable account if the product of the extra costs and the number of years you will stay in the plan exceeds one and a half times your combined federal and state tax rates on qualified dividends over your working career. That is, if you pay 1.70% expenses rather than 0.20%, and you pay 15% federal tax on qualified dividends, plus 5% state tax, you should still invest in the plan unless you are reasonably certain that you will stay with the employer for more than 20 years for a net loss of 30% (actually 26% because of compounding). If you pay no state tax, you should still invest in the plan unless you are reasonably certain you will stay more than 15 years.

The reason for the rule of thumb is that a long-term investment, even in a tax-efficient stock fund, is likely to lose more than your tax rate to taxes. You will pay tax every year on the dividends, continue to pay that tax after you leave the employer, and then pay capital-gains tax on most of the investment value when you sell the fund over the course of your retirement. (And if you retire in a 15% tax bracket and thus pay no capital gains on the fund sale, the lower tax bracket will also reduce the tax due on withdrawals from a 401(K), for a comparable tax savings.)"
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Helo80
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Re: Current 401k with Huge Fees, Anything I can do?

Post by Helo80 »

http://www.npr.org/2015/10/30/453163154 ... you-can-do

It may be worth gathering your fellow employees and filing a complaint with whomever handles the 401k decision. It sounds like you work for a small company.... so don't burn bridges of course... but maybe if other financially savvy people work with you, approach the decision maker and lay things out and see what can and cannot be done.

As you can see, 2% ER greatly cuts into gains. It's quite dramatic!!!

The more factual data you can bring to the data, and possible alternatives, the better case you have.
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dbr
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Re: Current 401k with Huge Fees, Anything I can do?

Post by dbr »

The question arises if this situation is because your executive management is stupid or because it doesn't bother them to see money stolen from their employees. Either way, what does this say about other aspects of how they manage the business and treat their people? I agree the brave thing to do is lobby for a better plan, but the most effective thing to do is seek employment elsewhere and explain why -- or not explain why.
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Helo80
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Re: Current 401k with Huge Fees, Anything I can do?

Post by Helo80 »



Looking over this article again.... I cannot help but think if the owners and management are contributing to the same 401k for their own retirements, they are screwing themselves over as well. I'm sure Vanguard has a 401k benefit plan for small businesses that would be more competitive than what you all have.
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grabiner
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Re: Current 401k with Huge Fees, Anything I can do?

Post by grabiner »

My rule of thumb is to consider a taxable investment over a 401(k) if the total loss to fees is more than twice your tax rate on qualified dividends. If you pay no state tax, then you pay 15% on qualified dividends, so the total loss would have to be 30%, which would be fifteen years at 2%. Therefore, despite those huge fees, it is worth investing in the 401(k) as long as you expect to spend less than fifteen years at the employer (or even longer if you are in a high-tax state); when you leave the employer, you can roll the 401(k) into an IRA, keeping the tax deferral but getting rid of the high fees.

Invest in anything else tax-favored first, such as a 529 plan for your children's college education if you have children.
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BL
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Re: Current 401k with Huge Fees, Anything I can do?

Post by BL »

They do appear high. However, there may possibly be some double-counting of the fees listed. 12b-1 fees are included in Expense Ratio (ER). Your management may tack on extra fees.

Investopedia says:
DEFINITION of 'Total Annual Fund Operating Expenses'
For a mutual fund or other type of fund management structure, the aggregate of the funds operating costs. Total annual fund operating expenses illustrates the total costs incurred by the fund itself over the course of a year in operating and running the fund. Such expenses would include the management fee and distribution fee.

Read more: Total Annual Fund Operating Expenses http://www.investopedia.com/terms/t/taf ... z4jTOyHigJ
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Topic Author
damageprone
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Re: Current 401k with Huge Fees, Anything I can do?

Post by damageprone »

Thank you everyone for your suggestions. I've been putting some things together to build a business case to lobby upper management to see if we can make a change. Hopefully I can get some traction. :beer
TallBoy29er
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Re: Current 401k with Huge Fees, Anything I can do?

Post by TallBoy29er »

Here's an article in today's WSJ pertaining to this. At some point, administrators in companies need to have this on their radar, else they will be welcoming a lawsuit.

https://www.wsj.com/articles/the-lawyer ... 1497000607

Edited to add the clip below, from the Wall Street Journal article quoted above:
Companies now are so worried about suits alleging mismanagement of these retirement plans that 401(k) industry consultants have coined a term for the threat: “getting Schlichterized.”
WhiteMaxima
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Re: Current 401k with Huge Fees, Anything I can do?

Post by WhiteMaxima »

invest in after-tax 401k. Then do rollover to Vanguard Roth every year. Buy VTI VXUS VBOND. Done.
Rupert
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Re: Current 401k with Huge Fees, Anything I can do?

Post by Rupert »

damageprone wrote:Thank you everyone for your suggestions. I've been putting some things together to build a business case to lobby upper management to see if we can make a change. Hopefully I can get some traction. :beer
At this point, having a crappy 401k is a legal liability for the company. If your boss doesn't know that, I'd be suspicious of how well the company, in general, is run.
Jack FFR1846
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Re: Current 401k with Huge Fees, Anything I can do?

Post by Jack FFR1846 »

I had Mass Mutual at my last job. Not as horrible as yours, however. What I would do:

Invest up to match in that 1.66% ER fund (I don't even care what it is....it's the lowest ER....use it)

Realize that you won't work there forever. Look into the plan and see if there are any allowed in-service withdrawals allowed. At my last job, they were allowed at 59 1/2. I left before then and had the money rolled over to Fidelity about 7 seconds after leaving. You're using this 401k simply as a place to accumulate funds. That's how you have to think of it.
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kinetic2255
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Re: Current 401k with Huge Fees, Anything I can do?

Post by kinetic2255 »

I've just made my 3rd annual appeal to management to reconsider our insurance wrapped high fee 401(a) options with an average of 1.6%. I think I'm officially labelled as a PIA now but I can't not ask. I have no ally coworkers. Based on our situation it makes sense to still contribute after match to the plan. I have a fairly stable position which gives me a little more leeway to provide my criticism​ and offer suggestions for improvement. If you are in the same boat , put a package together and plead your case. You can at least say you tried.
onourway
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Re: Current 401k with Huge Fees, Anything I can do?

Post by onourway »

I agree that you need to bring this up with management. 'Liability to the company' tends to spur action.
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goingup
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Re: Current 401k with Huge Fees, Anything I can do?

Post by goingup »

damageprone-
Contribute the max to both your 401K and your Roth IRA, as you have suggested you can.

Of course your plan is terrible and you should do all you can to change it. In the meantime contribute all you can to it. Why? Because contributing lowers your taxable income. Because it's an easy automatic way to accumulate wealth which will grow tax-deferred. The trend has been for 401K plans to improve over time and if you ever leave this job you can roll your balance into your new employer's 401K or into a IRA.

I grow weary of the poor advice on this forum to forego work savings plans because they aren't perfect. We boomers have HUGE 401K plan balances (and rollover IRAs) and pretty much never had any idea what we were paying in fees until fairly recently. Don't forgo $18K (plus match) in tax advantaged space because your plan stinks.

I hear the refrain on this forum which is, "I refuse to contribute beyond the match because my plan is too expensive." The real truth of that is those folks will not be near as wealthy as they could be because there is no substitute for automatic payroll contributions to a 401K/403B. (Rant over.)
indexonlyplease
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Re: Current 401k with Huge Fees, Anything I can do?

Post by indexonlyplease »

My wife has the same bad plan with Ameritas. I have been doing the following but changed my thoughts after another post I had on this site a couple of weeks ago.

She always has taken the 3% max contribution
She max out Roth IRA ($5500)
This month she is now maxing out her 401k in a Index fund. Still 1.79% fee with er and administration fees. This was recommended here on the Bogelhead site. Saving on taxes was worth it. She will transfer funds to new job hopefully.

I have made multiple calls talking to management. They sound interested but who knows if they will do something.

Hopefully over the summer she get a better job with better 401k (teach back to public school)

Hopefully she does not get fired for me being a pain in the neck.
capurkat
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Re: Current 401k with Huge Fees, Anything I can do?

Post by capurkat »

goingup wrote:damageprone-
Contribute the max to both your 401K and your Roth IRA, as you have suggested you can.

Of course your plan is terrible and you should do all you can to change it. In the meantime contribute all you can to it. Why? Because contributing lowers your taxable income. Because it's an easy automatic way to accumulate wealth which will grow tax-deferred. The trend has been for 401K plans to improve over time and if you ever leave this job you can roll your balance into your new employer's 401K or into a IRA.

I grow weary of the poor advice on this forum to forego work savings plans because they aren't perfect. We boomers have HUGE 401K plan balances (and rollover IRAs) and pretty much never had any idea what we were paying in fees until fairly recently. Don't forgo $18K (plus match) in tax advantaged space because your plan stinks.

I hear the refrain on this forum which is, "I refuse to contribute beyond the match because my plan is too expensive." The real truth of that is those folks will not be near as wealthy as they could be because there is no substitute for automatic payroll contributions to a 401K/403B. (Rant over.)
I agree with this entire statement but would add that, even with a narrow focus on only fees, the advice here is very well intended and in a lot of cases in the industry itself, you can't always find that.

This plan is very high cost, with many flaws so I'm not advocating the fees in place...however, consider this: a 2% fee on $18000 is $360. The tax savings alone will justify this decision exponentially.
wolf359
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Re: Current 401k with Huge Fees, Anything I can do?

Post by wolf359 »

capurkat wrote:
goingup wrote:damageprone-
Contribute the max to both your 401K and your Roth IRA, as you have suggested you can.

Of course your plan is terrible and you should do all you can to change it. In the meantime contribute all you can to it. Why? Because contributing lowers your taxable income. Because it's an easy automatic way to accumulate wealth which will grow tax-deferred. The trend has been for 401K plans to improve over time and if you ever leave this job you can roll your balance into your new employer's 401K or into a IRA.

I grow weary of the poor advice on this forum to forego work savings plans because they aren't perfect. We boomers have HUGE 401K plan balances (and rollover IRAs) and pretty much never had any idea what we were paying in fees until fairly recently. Don't forgo $18K (plus match) in tax advantaged space because your plan stinks.

I hear the refrain on this forum which is, "I refuse to contribute beyond the match because my plan is too expensive." The real truth of that is those folks will not be near as wealthy as they could be because there is no substitute for automatic payroll contributions to a 401K/403B. (Rant over.)
I agree with this entire statement but would add that, even with a narrow focus on only fees, the advice here is very well intended and in a lot of cases in the industry itself, you can't always find that.

This plan is very high cost, with many flaws so I'm not advocating the fees in place...however, consider this: a 2% fee on $18000 is $360. The tax savings alone will justify this decision exponentially.
I agree with this advice. I maxed out with terrible plans, including ones with loads. Eventually, I would change jobs and move the money to a rollover IRA where I could control the fees. In the early years, I paid attention to loads and 12-b-1 fees, not expense ratios or index funds. Still, I managed to accumulate quite a bit.

Yes, it works out better with a lower fee plan, but the tax deferral and a high savings rate can still make participation beneficial.

At one point, I could declare to the owner of a small company that I represented 10% of all the assets in their retirement plan. The other person with a similar amount was the president. As such, I could make suggestions about improving the options (that would help both of us) and he did take some of that advice.

Small companies have a hard time with 401k plans. Many vendors simply won't talk to them. Sometimes they're doing the best they can. It also helps to talk to the company 401-k person in HR in a way that is supportive and helps to solve their problems. The issue sometimes is getting other employees to participate, or getting the word out, or finding vendors. You don't want to be combative. Their money is often in the plan, too.
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