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My employer has just moved from a Simple IRA to a 401k plan that I enrolled in. The fund in the 401k plan is the Vanguard VFORX 2040 target date plan. I felt pretty good about that expense ratio, but started looking closer at the fees associated with the company hosting the 401k (pbretire.com).

The fees (see screenshot) really shocked me and seem high. The section II fees below happen quarterly, adding roughly another .11% to my costs. If my calculations are right, if I have $100,000 in my account, they get about $410 a year, if I have $500,000, they take about $2100 -- and that's in addition to the vanguard fund expense ratio.

I'm not sure what I should feel about these fees. Are they reasonable? If not, what recourse do I have if this is the only 401k option from my employer? Does it make sense to keep this and contribute or would it make more sense to not contribute to the 401k, and just put post-tax money into my Vanguard brokerage account (I'm filling my Vanguard IRAs already)?

Any help appreciated.

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2 Answers 2

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401k Fees tend to be pretty high across the board. and Target Date funds also tend to have pretty high fees. Those numbers actually look very reasonable.

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  • Well, my companies 401k plan charges me $39/year in total fees, not related to the amount in the funds at all. Those fees by Schwab are insane.
    – Jon Custer
    Jan 25, 2022 at 21:08
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    Be careful. At one of my previous employers they stated very low fees, but it turns out the investments they offered were a shell around actual mutual funds on the exchange and they were building in more hidden fees via loads. I've seen fees for 401k accounts as high as 3%
    – JohnFx
    Jan 25, 2022 at 21:27
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Are they reasonable?

For a 401(k), they're not terrible. Plus, it's possible the company is paying these fees for you.

If not, what recourse do I have if this is the only 401k option from my employer?

None. You are a "price taker" at this point.

Does it make sense to keep this and contribute or would it make more sense to not contribute to the 401k, and just put post-tax money into my Vanguard brokerage account (I'm filling my Vanguard IRAs already)?

Your company matches 3% or 4% based on a comment. Would you forego a 100% match to save 0.11% quarterly in fees? If I contributed $10k during the year, I'd rather have my company add another $10k and get charged $44 (0.11% of $10k * 4) versus putting $10k in a brokerage account or IRA and not getting a match.

Now, when you leave the company, it would make sense to roll the amount into an IRA that does not have ongoing fees (other than the investments themselves).

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  • "Would you forego a 100% match to save 0.06% in fees?" See this comment. Yes, your intuition is correct that a handful of basis points per quarter doesn't tip the scale here, but the different behavior of an ongoing return versus a one-time match is important in principle.
    – nanoman
    Mar 22, 2022 at 21:37
  • True, but a 0.11% quarterly fee would take a long time to eat into that match, and the match grows at (presumably) more than the fee rate.
    – D Stanley
    Mar 22, 2022 at 21:47
  • Doesn't actually matter what the underlying growth rate is. The fee eats into the base contribution as well as the match, and so eventually the balance will fall behind an alternative with no fee and no match. It's a point of principle here, taking about 160 years: An extra 0.44% per year would compound to a factor of 1.0044^160 = 2.02, which is more than the factor of 2 you'd gain from a 100% match.
    – nanoman
    Mar 22, 2022 at 22:38
  • True, but the next question is should I continue to contribute past the match amount?
    – pixelearth
    Mar 23, 2022 at 15:28

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