You've heard me whine before about two quarterly fees that weren't disclosed in my 401K plan document, but are regularly withdrawn from my account. They were pretty minimal at first, but now that I've been paying them several times I see them rapidly climbing. It looks like they're based on a percentage of assets under management. Now, remember that my entire 401K is in a single index fund. There is very little to manage here, and I'm already paying Schwab an ER to manage the fund. All the company has to do is receive my contributions from payroll, send them to Schwab, report a little to the IRS, and send me a stupid statement every now and then. What's the percentage of assets under management? Looks like about 0.5% total per year. That sucks. Assuming $50K contributions for the next 20 years and an 8% return on that fund, it looks like my 401K balance will be about $123K smaller than it would be without those fees. Seems like an awful lot of money to get a check every month, send it to Schwab, and hit print on the computer.
One of the fees is a “recordkeeping fee.” That's based on assets under management? Really? Because it's so much harder to write one extra zero you'll need to charge ten times as much? Unbelievable.
The other fee seems to be how we pay the 401K company. Looks like around 0.4%. I guess that explains why they come out once a year in nice suits and say nice things to us. Employee Fiduciary does it for a flat fee of $1500 for the first 30 employees, then $30 per additional employee per year. I'm already paying more than that every quarter and I've only been contributing for a little over a year. 20 years from now I'll be paying close to $9K a year for them to hit print.
Maybe I ought to call up Employee Fiduciary and see if they want to advertise on this blog.
Update: I called up Schwab the next morning and asked them what gives with the fees. Well, the person who answered the phone (who was very nice, but kept explaining to me how wonderful Schwab was) explained that the miscellaneous fee (about 0.4% a year) was for advisory services. That apparently pays for me to be able to call Schwab up and get advice and for the 401K guy to come out and talk to us once a year. She said some plans with Schwab don't provide this. (Hmmmmm…….I wonder if I can get my plan to quit providing this.) I also asked her about the record-keeping fee, you know, why it takes ten times as much money to write an extra zero down on the statement. Her only explanation was that that was how the fee structure was set up. She also promised to send me the official 401K plan document that supposedly lists these fees in it since she couldn't find it either.
I then talked to her about the brokerage option. It costs $200 a year to use this (goes up to $500 when I hit $500K in the account, and $1000 when I hit $1 Million in the account), but would allow me to buy all the Schwab index funds or ETFs fee-free or pay $8 a trade to buy Vanguard or IShares ETFs. Buying the funds I hold now in my Roth IRAs would cost me $50 a trade, however. It'll be a tough decision to decide which asset class to move from the Roth IRAs to the 401K first.
Update to the Update: I got another call from Schwab 10 days later saying they didn't have the 401K plan document and that I'd have to get it from the 401K guy. So apparently the only plan document is the one I already have, which clearly doesn't disclose the fees. There's a new law going into effect this year which will make the 401K provider disclose these, so I'm looking forward to seeing the updated plan document.
Image Credit: Larry D. Moore Via Wikimedia CC-SA