Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

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ldd4774
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Joined: Wed May 08, 2019 5:24 pm

Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by ldd4774 » Wed May 15, 2019 11:24 am

Reviewing my wife's Transamerica 401k plan and I noticed what seems to be a significant amount of fees. I looked into literature and of course it is tough to dissect. The annual disclosure states compensation to Plan's financial advisor at 0.5% of all assets paid quarterly. In addition, plan service fee may apply to assets allocated to each investment choice in plan. I also looked at summary annual report but it only listed expenses and not how fees were calculated. In addition each fund has additional plan service fees. For example, Blackrock Lifecycle fund has 0.18% Gross Expense Ratio, 0.11% NET expense Ratio and Plan Service Fee 0.84%.

For 2018 entire year,

Her beginning balance was 47,682
Money IN 2018- 14,679
Fees 2018 was $461.32


Is this high/normal?

inverter
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Joined: Mon Jul 27, 2015 1:40 pm

Re: Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by inverter » Wed May 15, 2019 11:26 am

That is very high... How large is the company?

dbr
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Re: Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by dbr » Wed May 15, 2019 11:31 am

A good plan would have zero for advising and zero for plan service fee. At worst if the employer refuses to underwrite any cost and dumps all the administration on the plan participants the fee would be on the order of 0.1% A plan service fee of 0.84% is theft. There is something wrong with how your wife's employer has arranged for this plan -- note the fault is the employer. Is this a very small plan?

mithrill
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Re: Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by mithrill » Wed May 15, 2019 11:37 am

My recommendation is to only contribute enough to receive any 401(k) match offered by the employer (unless you're already maxing out other retirement accounts) and invest any remaining funds into an IRA or similar that has lower fees.

It's also worth checking to see if other fund options within the plan are available with lower fees. With my 401(k) plan, the fees vary based on the fund(s) I select so it's possible your wife may be able to get a better rate within her existing 401(k).

nolesrule
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Re: Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by nolesrule » Wed May 15, 2019 11:41 am

I'd take it over my plan. Currently 0.71% fees + $24/year. On top of much higher expense ratios.

Spirit Rider
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Re: Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by Spirit Rider » Wed May 15, 2019 11:47 am

From the description you provided and calculations, your total plan administrative fees are 0.84%. This would not likely include the fund ERs. You are looking at just under 1% for fees all in for index funds. These are relatively, but not obscenely high total fees for a 401k plan in 2019.

Your wife should contribute enough to receive any full match. Maximize any HSA contributions. Depending on your marginal tax rates you may want to prioritize a Roth IRA at a low cost custodian. If your retirement savings rate calls for more investments, you still would generally be better off investing in the 401k than taxable investments.

A lack of perspective should not cause you to take counter-productive actions. Yes, lower costs are always better, but there is significant benefit in tax deferral. It is generally only when you start to get up towards 2% in total fees, that you should look elsewhere with your investing dollars.

If she has the personality to undertake it, petitioning her employer to significantly reduce fees is probably the best option.

pkcrafter
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Re: Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by pkcrafter » Wed May 15, 2019 11:50 am

link to 401k fees,

http://www.401khelpcenter.com/401k_educ ... Nw_5qR7ncc

Link from Wiki - How to campaign for a better 401k plan--

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

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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ruralavalon
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Re: Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by ruralavalon » Wed May 15, 2019 11:58 am

ldd4774 wrote:
Wed May 15, 2019 11:24 am
Reviewing my wife's Transamerica 401k plan and I noticed what seems to be a significant amount of fees. I looked into literature and of course it is tough to dissect. The annual disclosure states compensation to Plan's financial advisor at 0.5% of all assets paid quarterly. In addition, plan service fee may apply to assets allocated to each investment choice in plan. I also looked at summary annual report but it only listed expenses and not how fees were calculated. In addition each fund has additional plan service fees. For example, Blackrock Lifecycle fund has 0.18% Gross Expense Ratio, 0.11% NET expense Ratio and Plan Service Fee 0.84%.

For 2018 entire year,

Her beginning balance was 47,682
Money IN 2018- 14,679
Fees 2018 was $461.32


Is this high/normal?
The fees in her 401k plan are high in my opinion. The fees are not high enough to skip using her plan.

Is there an employer match in her 401k plan?

Do you have IRAs?

Do you also have a work-based plan like a 401k?

How much (in dollars) can you as a couple contribute annually to investing (total, all accounts)?

In general the investing priority should be (1) contribute enough to work-based plans to get the full employer match, (2) contribute the annual maximum to IRAs, and (3) contribute more to the work-based plans even with high fees. WIki article, "Prioritizing Investments".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
ldd4774
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Re: Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by ldd4774 » Wed May 15, 2019 12:03 pm

Thanks everyone so far for input. There is very small match of 1.5%. All her funds seem to have 0.6-0.84% plan service fees. The funds with lower service fees have higher expense ratios so this all balances out. The only other one I would consider is Blackrock S&P 500 which is 0.04% but still has 0.84% plan service fee.

I looked at 2017 Annual Report and they of course do not disclose how fees are calculated. They has Plan expenses of $74,000 which $8336 was administrative expense fees and $66, 342 in benefits paid to participants. Total plan income was 2.8 million with 212 participants.

We are married filing jointly in 24% tax bracket but below AGI for Roth so she and I could contribute to Roth IRA. Currently, we are both maxing out 401K. My plan with Fidelity is great with low fees.

Do you recommend putting in 401K for wife to meet company match, then ROTH max $6000, then add any leftover money to 401K in that order. My wife is 43 years old FYI and we already have Vanguard IRA from years ago set up, so familiar with Vanguard low cost funds.

If based on what Spirit rider was stating, the administrative fee of 0.84 plus gross expense ratio of 0.18 is 1.02% vs Vanguard Target Retirement 2045 of 0.15%. I would even put money into Total Stock Admiral Shares for 0.04 ER but lose the tax savings of contributing to 401K if I move money into Roth IRA. There is also ROTH 401K option for her 401K but with such high fees, I think this is bad idea.

I do like keeping money in 401K because our tax rate and taxes owed will be lower with her contributing max 19,000 a year.

Topic Author
ldd4774
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Joined: Wed May 08, 2019 5:24 pm

Re: Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by ldd4774 » Wed May 15, 2019 12:11 pm

[/quote]
The fees in her 401k plan are high in my opinion. The fees are not high enough to skip using her plan.

Is there an employer match in her 401k plan? Yes, small 1.5%

Do you have IRAs? Yes, we both have IRA with Vanguard, combined in mid six figure range

Do you also have a work-based plan like a 401k? Yes, I have 401K through Fidelity and maxing it out at 19,000 a year

How much (in dollars) can you as a couple contribute annually to investing (total, all accounts)? We both max out 19,000 a year in our 401K. We are starting to look into adding money into ROTH and/or 529 moving forward. Ultimate plan and goal is to both max out 401K, $6000 each to ROTH and $2000 each to 529 (live in MA, get state deduction/credit)

In general the investing priority should be (1) contribute enough to work-based plans to get the full employer match, (2) contribute the annual maximum to IRAs, and (3) contribute more to the work-based plans even with high fees. WIki article, "Prioritizing Investments".
[/quote]

Thanks for advice on route to follow. Since she contributes to 401K, we can't do IRA, but can do ROTH IRA. Would you maximize ROTH after contributing to 401K to get employee match or continue to fully fund 401K first?

FYI, my wife's salary is high five figures, my salary is mid six figures if this helps in calculation. We are still below limits for ROTH contribution with modified gross income because of 401K deductions along with medical benefits, FSA, Dependent Savings account. Not eligible for HSA

HomeStretch
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Re: Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by HomeStretch » Wed May 15, 2019 12:36 pm

Sounds like a small company / plan with total assets under $5-$10 million where the employer doesn’t pay the fees.

Spouse also has a Transamerica 401k Plan with a 0.50% admin fee passed on to participants. Luckily there are good fund choices with low ERs. We still contribute and the plan has a good match.

Spirit Rider
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Re: Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by Spirit Rider » Wed May 15, 2019 1:12 pm

ldd4774 wrote:
Wed May 15, 2019 12:11 pm
FYI, my wife's salary is high five figures, my salary is mid six figures if this helps in calculation. We are still below limits for ROTH contribution with modified gross income because of 401K deductions along with medical benefits, FSA, Dependent Savings account. Not eligible for HSA
Direct Roth contributions phase out with a MFJ Roth MAGI of $193K - $203K. So how are you below the limits?

deltaneutral83
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Re: Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by deltaneutral83 » Wed May 15, 2019 1:32 pm

Spirit Rider wrote:
Wed May 15, 2019 1:12 pm
ldd4774 wrote:
Wed May 15, 2019 12:11 pm
FYI, my wife's salary is high five figures, my salary is mid six figures if this helps in calculation. We are still below limits for ROTH contribution with modified gross income because of 401K deductions along with medical benefits, FSA, Dependent Savings account. Not eligible for HSA
Direct Roth contributions phase out with a MFJ Roth MAGI of $193K - $203K. So how are you below the limits?
I think he meant mid 100's instead of mid six figures and probably lowers their MAGI by both maxing out their 401k's.

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ruralavalon
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Location: Illinois

Re: Is my 401K fees too high - have Pro Rata fees and Plan Service Fees

Post by ruralavalon » Wed May 15, 2019 2:00 pm

There is very small match of 1.5%. All her funds seem to have 0.6-0.84% plan service fees. The funds with lower service fees have higher expense ratios so this all balances out. The only other one I would consider is Blackrock S&P 500 which is 0.04% but still has 0.84% plan service fee.
., . . . . Total plan income was 2.8 million with 212 participants.

We are married filing jointly in 24% tax bracket but below AGI for Roth so she and I could contribute to Roth IRA. Currently, we are both maxing out 401K. My plan with Fidelity is great with low fees.

Do you recommend putting in 401K for wife to meet company match, then ROTH max $6000, then add any leftover money to 401K in that order. My wife is 43 years old FYI and we already have Vanguard IRA from years ago set up, so familiar with Vanguard low cost funds.
Thanks for advice on route to follow. Since she contributes to 401K, we can't do IRA, but can do ROTH IRA. Would you maximize ROTH after contributing to 401K to get employee match or continue to fully fund 401K first?
Yes. Maximize Roth IRA contributions as a priority ahead of contributing above the employer match in her 401k.

Because of the tax-deferral it is still worth contributing to the 401k up to the maximum if possible. Wiki article, 401k, "Expensive or mediocre choices". She is 43. When she leaves this employer she can rollover to an IRA at a low cost provider, so will not be stuck with those fees forever.

Also she can attempt to induce the employer to adopt a better plan with a lower cost administrator. Small company 401k providers which have been favorably mentioned here are:
www.employeefiduciary.com;
https://www.guideline.com/; and
https://www2.ascensus.com/.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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