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Redesigned 401(k) Statement Includes List of Fees

This article was written by in Consumer. 16 comments.


A few days ago, I received a redesigned quarterly statement for my 401(k) account. It contains the usual sections, including a summary, transaction detail, a pie graph of my asset allocation.

It clearly stated my account performance, not including deposits as performance, for the first quarter: 3.41%.

The statement also includes for the first time the expense ratios for each fund right alongside their performance metrics. I’m mostly familiar with the fees, but only because I check the prospectuses once a year. Seeing them in front of me in one place on a statement, I was struck with the reality. The expense ratios of the funds in which I invest range from 0.50% to 1.20%.

Over the past few years, my company has decided to periodically replace individual funds with another with similar goals, holding, and investment philosophies. It’s interesting to see the “new” funds have the highest fees.

I’m considering moving everything from the individual funds to the “Core Equity Account,” a large cap index fund with a 0% expense ratio, which has performed better than all the other, more expensive large cap funds.

Currently, my 401(k) is diversified almost equally between international stocks, mid and small cap stocks, large cap stocks, and “other” (which includes company stock and real estate funds). Some of that company stock is “mandated.” Half of my company match must be invested in company stock (though it can be later exchanged — I think) and the other half currently mimics the allocation of my pre-tax contribution.

I like having the diversification, but the appeal of a 0% expense ratio is compelling.

Updated September 28, 2007 and originally published April 19, 2007. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 8 comments… read them below or add one }

avatar F2O

I received my statement last Friday and was just as surprised to see the fees all laid out like that. I was wondering about the “GoalMaker” that was pushed a few years ago. Does it lead people into the more expensive funds? I personaly figure out my own asset allocation, but I know of a bunch of people that dump their contributions in and let the GoalMaker take care of it.
Also, the company contributions can be moved out of the company stock at any time (unless you are a designated person).

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avatar Jealous

I’m jealous that you even have the choice of an index fund with low expenses. My wife’s funds are junk, with mid-high expenses. I’m going to check into an ‘in-service withdrawal’, to see if I can roll much of the money over into an IRA while keeping her ongoing contributions and company match. But they’ll probably tell me to take a hike.

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avatar tolak

Find out who makes the fund selections and don’t be shy to enter into a discussion.

I found that my company has a fund selection committee which works with an outside consultant and they were open to questions/suggestions and even putting me in touch with their consultant.

The selection of funds is narrow because they want to “keep it simple” for employees, which they see as unsophisticated investors, not because it’s expensive to have a greater variety. Your company may have other reasons, but don’t assume from the start it’s not a matter for discussion.

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avatar tinyhands

Don’t chase last quater’s/year’s returns, you already know that. Diversification among aggressive growth funds is statistically the best strategy for investors with a 15-20 year horizon.

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avatar J

Flexo, The statement may say 0.00% for the Core Equity and Small Company Stock account but remember that these are separate accounts. Who knows what they’re charging. Even the fact sheets for those funds are vague and open to interpretation with respect to the fees. This has always been a mystery in our office and we’re convinced the ratio is somewhere close to 1%.

PS: The new LSV fund with the 0.65% ratio is a very attractive fund with a great team of portfolio managers behind it.

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avatar Kurt

“It clearly stated my account performance, taking cash flow into account, for the first quarter: 3.41%.”

No one else thinks this is the worst number in the history of financial reporting? Why include cash inflows? That’s like recording your car’s fuel efficiency by dividing the miles traveled in a year by the difference in the gas tank reading on Jan 1 and Dec 31.

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avatar Luke Landes ♦127,535 (Platinum)

Kurt: I think I phrased that wrong. It’s not the increase of balance between the quarter’s ending balance and opening balance. I believe it’s the weighted average return of every $1 invested, whether that $1 was in the account at the beginning of the quarter or deposited some time throughout the quarter.

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avatar Jim Bigham

J comments, “Who knows what they’re charging…Even the fact sheets for those funds are vague and open to interpretation with respect to the fees”. This should be unacceptable. There is no question that the plan sponsor could tell you to the PENNY how much they paid in health premiums last quarter because they got a bill and cut a check. Not so with the retirement plan. Having worked behind the curtain so to speak as a vendor I can tell you that participants and employers have no idea what the real costs are. The actual expense ratio for that “fund” is likely 25-400% higher than you’ll see on your statement since funds aren’t required to include brokerage commissions in their statement of operations (annual report). It’s one of many, many dirty little secrets. Best of luck all.

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