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Via my employer's retirement plan, I have some money invested in a fund with an advertised expense ratio of "($0.13 per $1,000) 0.013%". (This is listed as both the gross and net expense ratio.)

For the calendar year 2023, the balance has never exceeded $100,000 so the most I would expect to pay in fees in 2023 is $13 total. However, I have already been hit with 3 "recordkeeping fees" at $9.75 each, plus a handful of "inv. option/source fees" for approximately another $10 total. This means that in 2023, I have paid about $40 in fees already on a balance that never exceeded $100,000, which makes me believe that the actual expense ratio must be at least 0.04%.

Is my math correct? Am I misunderstanding what expense ratio means? How are these fees able to apparently escape being included in the expense ratio?

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You are misunderstanding what expense ratio means. Expense ratio is what the fund charges, and it is deducted from your investment with the fund.

What you're seeing is what the plan charges, which is administrative fees of the plan itself, not the expense ratio of the funds you've invested in through the plan. You should confirm how much the plan should charge with your employer and the plan documents.

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  • To be clear, fund expenses aren't explicitly taken in a discrete visible transaction; instead, each year the fund makes a certain amount of income, pays its expenses out of that income, and distributes the net income to investor accounts. Thus an expense ratio of .01% means "if we had been able to operate without expenses we would have paid you .01%-of-principal more than we did". Aug 23, 2023 at 7:16
  • @dave_thompson_085 fund expenses have nothing to do with income. The expense ratio is for the investment, not income. If a fund has negative performance, it will still have expenses. That's one of the reasons for funds to have capital gains distribution
    – littleadv
    Aug 23, 2023 at 7:45
  • Cap gains distributions are separate, at least in US (which was the Q). I've never held a fund that had no income, but if one does (say it holds only commodities) to cover expenses it will have to sell some assets (or for trad-fund when new money comes in purchase less than the assets it nominally should) thus lowering its NAV and the value of each investor's holding. The fund will not, ever, charge the account of each investor with a transaction that says e.g. ".01%-of-assets fee to fund for this year's expenses". Aug 24, 2023 at 2:53
  • @dave_thompson_085 Your response doesn't address my comment. The fund expenses have nothing to do with the fund income. And yes, some funds will report expenses as capital gain distributions even though nothing is actually distributed to the sharedholders. Here's an example for SLV
    – littleadv
    Aug 24, 2023 at 4:43

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