Tuesday, September 26, 2006

401(k) Plan Fees...and How They Reduce Your Stash

Since we are briefly on the subject of pensions: An ongoing issue with 401(k) Plans is administrative fees. (Hell, it's an ongoing issue with brokers and banks and mutual funds.) The Los Angeles Times has had a couple of articles on the subject in the last few days (see them here and here.) I have a few thoughts on the subject... When I was young, I paid no attention to investment fees of any kind. I had an amiable broker who took me out to breakfast, chatted me up, and charged me 2% of my assets for the privilege. Idiot that I was, I thought that the charge wasn't any big deal. ("Two percent? That isn't very much, is it? I still have, like, 98%..."). Now that I am older and marginally wiser, I find out that 2% is a hell of a lot to take out of assets. Consider: 2% of assets over a ten year span ends up being 20%. Over thirty years? I shudder to think... 401(k) Plans, by their nature, incur expenses. The administrator takes a cut, the plan's legal fees get charged back to the participants, as do a few miscellaneous expenses. We have a plan that is run relatively inexpensively, and we joust with the administrator to cut costs, but it still is higher than various mutual funds (This one, for example, which is the industry low-cost provider.) The average 401(k) Plan has administrative fees running from .4% to 1.5%. The TAG 401(k) Plan has a weighted expense ratio of about eight-tenths of a percent. It's higher from some accounts and lower for others. We strive continually to get it lower. There's no way around incurring expenses as you tuck tax-deferred money away, but you have a right to know what you're paying. But know that these fees are there.


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