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SecondAttempt

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This probably falls in the category of just a rant but I am really ticked off!

I've posted in another thread that I am just over 2 years from my retirement date but could retire any time if management does something stupid.

Well, today it was announced that our 401k will have a new fee. A fee of 0.25% is being added on top of any fund fees. This is not a load, this fee is applied to our full balance. So I have a very large holding in Vanguard Wellsley Admiral shares that I pay about 0.15% for. Vanguard does the hard work and now plan administrator decides to take 67% more than Vanguard. We get Vanguard total stock market for about 0.05% so the new fee means we will pay 6 times as much for it!

This is on our full accumulated balance with no recourse! I am beyond livid. This will cost me thousands of dollars per year until retirement when I can get the money out.

I am considering 3 options:
- retiring immediately before the new rules go into effect
- making a BIG stink about this to encourage a movement among other employees. I could very well get fired but that's jus option 1 and could be fun
- sucking it up and sticking with my plan. My salary over the next couple of years more than covers the fees but there is a principle at stake here.

Meeting late next week where the stink could begin so my decision timeline is short.

Open to comments but not really seeking advice here, just a rant!
 
No advice on how to proceed. If your company is kicking in some significant % of your contributions, you can hardly withdraw just for .25%.

Just curious about the math. You indicated that the extra .25% fee would cost you thousands per year. For $1000 fee, that would mean an underlying balance of $400,000 in your plan. So we're talking multiples of $400K in your 401(k)? It may be you CAN retire, depending on your spend level, of course.

I agree that adding the fee seems a bit excessive, but my 401(k) wasn't cheap either - but the Megacorp DID put in a match (50% to 100% depending) on up to 6% of salary. It was a game you HAD to play - no matter the fees. YMMV of course.
 
If the company is adding a percentage of your contributions...

Yeah make a big stink, cut off your nose to spite your face.
 
My Megacorp did the same thing a few years ago. Retired and rolled everything to an IRA to escape the fee.
 
How old are you? If you’re older than 59 1/2 why not do An “in-service distribution” rollover to another IRA?

I did one (you’re allowed 2 per year) for most of my substantial balance from my company’s Vanguard 401k, last year.

The money was used to fund several alternate investment strategies I implemented with my FInancial Advisor including a MYGA for my 1st few years of retirement income needs.

Reduce the balance in your 401k to avoid most of the added fee while still continuing to participate in the plan with company match, etc.
 
You might raise it forthrightly but politely with the management. The decision was likely taken by some HR or finance drone that doesn't even understand investing returns. They were given a financial target to hit and they did it.

But I wouldn't say to them its going to cost you thousands of dollars. No one is going to work hard to fix an issue for a guy with $1m in a 401-k.

Better to explain to them the aggregate hit to everyone.

For example, show them that if the 401k participants are averaging a 6% return and there is 3% inflation, then they really just took .25%/3% = 8.5% of the year gain they employees make on the investments.

You're unlikely to change the decision though.
 
Your 401k is a perk like anything else your company offers. It's not an entitlement. They can set costs and fees as they do with any other perk they offer. They could reduce your match, they could reduce the number of funds. They can do whatever they wanted (legally of course) to what they offer.

As an employee you have the option of accepting what they offer, as you did when you were hired, or quitting if you don't like what they offer.

So go ahead and make your choice.
 
Max contributions to the 401k, take the company’s match and smile.

You said you can retire if you want. Don’t sweat it. Roll the money out when you retire.
 
There are ERISA rules that require the plan sponsor and administrator to be able to justify that fees are reasonable. What is this fee for? Who does it get paid to? If the answer is the company is getting the money, a good labor lawyer would love to take on that lawsuit.

My guess is that up until this point, your employer has been paying the third party administrator directly to run your plan and doesn’t want to do that anymore. So this new fee is probably going to that administrator who keeps all the records for each participant, invests the money in the funds you picked, processes withdrawals, etc. If this is what the fee is for, they are definitely allowed to do it and the only issue would be given the size of the plan does the rate need to be that high to properly compensate the administrator.

Sounds like your company is cutting costs by no longer covering plan costs that they aren’t required to do and most companies have not done. Stinks, but you’ve benefited all these years while others don’t.
 
SecondAttempt said:
This probably falls in the category of just a rant but I am really ticked off!

I've posted in another thread that I am just over 2 years from my retirement date but could retire any time if management does something stupid.

Well, today it was announced that our 401k will have a new fee. A fee of 0.25% is being added on top of any fund fees. This is not a load, this fee is applied to our full balance. So I have a very large holding in Vanguard Wellsley Admiral shares that I pay about 0.15% for. Vanguard does the hard work and now plan administrator decides to take 67% more than Vanguard. We get Vanguard total stock market for about 0.05% so the new fee means we will pay 6 times as much for it!

This is on our full accumulated balance with no recourse! I am beyond livid. This will cost me thousands of dollars per year until retirement when I can get the money out.

I am considering 3 options:
- retiring immediately before the new rules go into effect
- making a BIG stink about this to encourage a movement among other employees. I could very well get fired but that's jus option 1 and could be fun
- sucking it up and sticking with my plan. My salary over the next couple of years more than covers the fees but there is a principle at stake here.

Meeting late next week where the stink could begin so my decision timeline is short.

Open to comments but not really seeking advice here, just a rant!
Click to expand...

You are still getting off light compare to some plans I have seen on here.
 
At my last employer, a number of employees got together and made a case for switching 401K custodians, and it worked. I think this happened shortly after I joined, and I wasn't involved. The company was pretty small then, maybe 2000 employees. Excess fees and fund options were the reasons, I heard.

btw these were people who either had or were on their way to becoming millionaires with employee stock options. 401Ks weren't a major part of their wealth, but they were still listened to. From what I heard they went more with the approach in Galaxy Boy's Boglehead Wiki link rather than raising a BIG stink.
 
I would investigate if you can do an in service rollover to remove the bulk of your funds to a self-directed IRA. If that is not an option, I would bring it up to mgmt or more likely HR. The Bogloeheads Wiki is good starting advice. But it may be a case of just having to accept it until you retire.


Could be that your company has been paying the fees and now they see it as basically a cost shift to the employees, i.e. free money for the company. Or the 401k administrator has increased the administrative fees and you might consider changing the administrator to one with lower admin fees.
 
You could write a "professional" article / memo on the impact this would have on money in the 401-k plan, the cumulative effect on returns over time, the comparison with what the mutual funds charge etc. and send it to your management + HR + the CEO.



You could co-write it with someone with a similar take /knowledge on the subject.



Activism doesn't have to be confrontational.
 
Things happen at Mega Corp. Transferring fixed costs is one of those things. And it is a zero sum game. I'd suggest you flip the question around and consider the other side.

Before the change to pay the Administrator a fee out of the funds on deposit, your profit-sharing, raises, cost of health care premiums, life insurance, and other perks/benefits were smaller than they could have been because the company was paying the administrator directly.

Now that this bit (see the analysis below) of overhead is gone, what gains can you expect in these perks now that the expense is no longer on Mega Corp but on the 401(k) depositors - who probably, coincidentally, and without any forethought includes the senior executives?

By my calculations if you have $400,000 in Wellsley, you lose $600 a year to paying Vanguard for managing the fund. And if you have $300,000 in Vanguard Total Stock, you lose $150 a year to Vanguard for managing that fund. So together today you pay $750 on a $700,000 investment (some of which probably came from your employer's match). That amounts to 0.11% paid to Vanguard, and after the change another $1,750 goes to the 401(k) plan administrator. So altogether, tomorrow your annual cost would be .35% per year ($2,500). Yes it is $1000s of dollars, but a very small amount of your total investment.

You are angry. Quit now. Don't delay, you won't get over your anger. You cannot control this.
 
Gotadimple said:
Things happen at Mega Corp. Transferring fixed costs is one of those things. And it is a zero sum game. I'd suggest you flip the question around and consider the other side.

Before the change to pay the Administrator a fee out of the funds on deposit, your profit-sharing, raises, cost of health care premiums, life insurance, and other perks/benefits were smaller than they could have been because the company was paying the administrator directly.

Now that this bit (see the analysis below) of overhead is gone, what gains can you expect in these perks now that the expense is no longer on Mega Corp but on the 401(k) depositors - who probably, coincidentally, and without any forethought includes the senior executives?

By my calculations if you have $400,000 in Wellsley, you lose $600 a year to paying Vanguard for managing the fund. And if you have $300,000 in Vanguard Total Stock, you lose $150 a year to Vanguard for managing that fund. So together today you pay $750 on a $700,000 investment (some of which probably came from your employer's match). That amounts to 0.11% paid to Vanguard, and after the change another $1,750 goes to the 401(k) plan administrator. So altogether, tomorrow your annual cost would be .35% per year ($2,500). Yes it is $1000s of dollars, but a very small amount of your total investment.

You are angry. Quit now. Don't delay, you won't get over your anger. You cannot control this.
Click to expand...

Quoting Gotadimple but thank you everyone for talking me off the ledge. I'm still ticked off and considering my options. But I think I will stick with my plan to retire in a couple of years. I am leaning now to quietly lobbying over this rather than inciting an uprising. I am close enough to the head of HR, the CEO, and CFO that I think they will listen to me. I don't think they will do anything but I think they will listen. Most of them have been with the company for decades so I'm sure they don't like the new fee any more than me.

Several people have done a pretty good job of estimating my balance and calculating the scale of the fees. I am not upset about mutual fund management fees in general. Fees do influence the funds I select which is why I lean to Vanguard. These new fees though are just a blatant profit grab by the third party administrator! I'm fairly certain that the company is not paying lower administrative fees but that is something that I will ask.
 
Many 401ks and similar plans have funded the expenses of the plan, such as the cost to manage the plan itself, record keeping, yearly audits, and marketing expenses (those mailings and seminars) using revenue share. In other words, the funds kicked back a part of the underlying management fees. At least two problems have arisen from that. First, with the ever lower management fees, there just isn't much left in many plans to share/kick back to the plan sponsor. Second, in plans that are not that large, those with big balances in essence are paying nearly all of these management fees since their share of the underlying fund management fees can be quite a large percentage of the total revenue generated by the plan funds. Such an imbalance - i.e. not spreading the cost of the plan itself around to all of the plan participants, can be seen as unfair and the basis for a complaint by those paying the bulk of the fees. As a result, plans are looking, and as you have seen, implementing a relatively small fee across all participants to fund these costs. In some instances, where plans have done this, the plan sponsors have also started distributing any revenue sharing/kick backs from the fund manaement fees back to the participants. I don't know which system is "fair" but there is a cost to having these plans and companies no longer want to pay that cost if it can be avoided.
 
Today we have a major labor shortage, you might find HR/management more receptive to some constructive feedback. I would start with asking questions: the reason for the fee, is it from your company or the 401 custodian? Most megacorps just eat the custodial fees instead of nickel and dime their employees. Who is the custodian?
 
I am with Marinauser, but let me put it a different way. My small company was paying all of the fees, including some of the fund fees. At some point, as 401k balances became huge, the overall fees became huge. The 3rd party administrator suggested charging many of them to the individual employee balances. Company still paid a bunch of the 401k costs, just not all of them. Employees suggested burning me at the stake. So, it could be that SecondAttempt is just getting a dose of reality, not a profit grab. No employer (I should say most) would suggest such a change without a real good explanation. IMHO
 
Same here, except no match involved & higher, much higher, fees. We were +1% on every option, even s&p index fund.

The salt in wound was the administration folks were related to the company owner so stunk in extra ways. I made it aware to anyone who was interested (politically politely) and just as I was moving on they switched to a different administrator. I like to think that I had a hand in helping this along, but I still have fond memories of rolling over my account to Vanguard and buying lots of Admiral shares...
 
SecondAttempt said:
Quoting Gotadimple but thank you everyone for talking me off the ledge. I'm still ticked off and considering my options. But I think I will stick with my plan to retire in a couple of years. I am leaning now to quietly lobbying over this rather than inciting an uprising. I am close enough to the head of HR, the CEO, and CFO that I think they will listen to me. I don't think they will do anything but I think they will listen. Most of them have been with the company for decades so I'm sure they don't like the new fee any more than me.

Several people have done a pretty good job of estimating my balance and calculating the scale of the fees. I am not upset about mutual fund management fees in general. Fees do influence the funds I select which is why I lean to Vanguard. These new fees though are just a blatant profit grab by the third party administrator! I'm fairly certain that the company is not paying lower administrative fees but that is something that I will ask.
Click to expand...

Late to the thread but I think that is a more sensible plan. Another approach with the head of HR, CFO and CEO might be start the conversation asking why the 0.25% fee is being imposed... and why it wasn't in the past. It might be that they were previously subsidizing the cost of plan administration and decided to not do it any longer or subsidize it less. As part of that conversation you might mention that for certain funds that the fee is are going up 2x or 6x... they may not be aware of that.

In the meantime, is there anything the plan offers that is useful? Employer match on contributions? A good stable value fund?

Does the plan allow in-service rollovers? If not, then perhaps they might be willing to a that feature at the same they are imposing the fee.

If the plan allows in-service rollovers and doesn't have a good stable value fund then you might avoid the fee by doing a big in-service rollover.
 
pb4uski said:
In the meantime, is there anything the plan offers that is useful? Employer match on contributions? A good stable value fund?

Does the plan allow in-service rollovers? If not, then perhaps they might be willing to a that feature at the same they are imposing the fee.

If the plan allows in-service rollovers and doesn't have a good stable value fund then you might avoid the fee by doing a big in-service rollover.
Click to expand...

The match is double what I put in so yes, it's good. The investment options are poor. They previously had almost only load and high fee funds. Now they have a few Vanguard funds including admiral shares for Wellesley and also total stock market and total bond market. So there are good options but most of the options are crap.

The fund company is one of the largest in the US but I don't want to say much more. They have a history in annuities and still try to push them. You can probably make an educated guess. I do not like the fund company but they are not the villain in this specific case. It is the administrator company that is slamming on the new fees.

Edit to add: I will ask about in-service rollovers. I'm fairly certain they do not allow them now but that doesn't mean they won't consider that in response to this new fee. As I said, most in management have a lot personally at stake so they are likely to have self-interest in that option.
 
Last edited:
New source of income for ur company
back when i wor$#D they changed our 401k to private non listed funds (instead of Vanguard)
and changed the fixed income (which was pretty good) to a bond fund
 
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