How much in hidden fees are in a 401k?

Daves

I have a 401k plan with Fidelity through my employer. There are funds offered other than Fidelity of course (Vanguard per example).

After listening to Mr. Bogle's interview, if I understand him right, that if I choose a Vanguard Index fund which has for example a 0.5% load fee, there are other fees (from Fidelity I assume) that could raise that figure to say 1-2%.

Can someone explain what hidden fees I am paying to play the game?

davidrmoran

I would not trust anything Bogle says about hidden Fidelity fees, but others will chime in on 401ks and fees in general. Rekenthaler at M* among many others thinks that the recent Frontline 'expose' was complete bunk (as did I, not claiming any originality here).

How impressive that you have a 401k with both Fido and Vang! Wow. What employer, if I may pry?

msf

Vanguard never charges a load, period. That 0.5% per year fee (the only Vanguard index fund I could find charging this much is their new Emerging Markets Government Bond Index Fund) goes to pay the management of the fund, and to pay the fund operating expenses. Not to pay a broker, not to pay the plan administrator, not to pay anything else.

Plans often charge a la carte fees, such as for taking out a loan against your 401(k). That's not going to raise your fee rate, because it is a one-time fee, not an ongoing charge.

Plans charge annual maintenance fees (e.g. to do the IRS-required bookkeeping such as preparing and filing Form 5500). Usually your company pays for these fees, but occasionally these fees get passed on to you. Remember IRA maintenance fees - where the fund or broker would charge you maybe $10 - $20 per account or per fund for your IRA? Same idea here - it costs money to operate a 401(k) plan - much more than it costs to operate an IRA. Someone has to pay those costs, and in small companies that can't afford them, that someone could be you.

If you've got an annuity (highly unlikely with a Fidelity-operated plan), the annuity itself has annual fees, and those generally are paid for by the participants (you). Just as a variable annuity will charge you, say 1.25%/year for the policy as well charge you the fund expenses, a 401(k) or 403(b) that's an annuity will add the annuity fee to the cost of the underlying fund. That annuity fee goes toward paying the annual maintenance of the plan. Again, I don't think you'll have that with a Fidelity-run plan.

In short, I doubt that you are paying "hidden" fees. Generally the high fees aren't hidden. They show up as high expense ratios. (The breakdown as to why these ERs are high may be obscure, but the fee rate itself isn't.) FWIW, I speak as someone who has had 401K plans that were annuities, that had back end load funds, and as someone who personally moved a company plan from an insurance company plan to a Fidelity plan to reduce costs.

Investor

First lets get the name right: it is Bogle. I've given you some links in the Wellington thread regarding John (jack) Bogle. He himself was never a fund manager. But he is the reason why fees overall fund industry is lowest in US vs international counterparts. Investors in Canada, Europe etc. pay a lot more. Because he champions the investors some call (Bogle Heads) him Saint Jack!

The fact that you do not know much about Bogle identifies you as a potential young or new investor. He is very well recognized figure.