Another Reason I Hate my 401(k)

I have always had a pretty angry relationship with my 401(k).  On the one hand, I get a match of 100% up to 6% of my salary provided by the generous boss-men (anyone know why this is very common?), on the other hand my fund choices are terribly expensive.  I largely ignore the account only updating it once or twice in the past couple years.

My 401(k) Over Charges me For Cash

While I always knew my 401(k) was expensive in terms of fees, it became much more apparent when readers discussed reallocating and rebalancing my 401(k) with me a few months back.  But, time passes and I forgot how much I disliked the account…until last night.

I don’t like writing about my feelings regarding the market, so I don’t do it that often but it is needed for this post.  Every other day we hit a new all-time high for some of the indexes.  This makes mee feel like at some point the big money will take profits off the table causing a slight correction.  I am not saying a 20% correction but one big enough I would like to avoid.

As such, I pulled up my funds lists to see what options I could use to actually put my money where my mouth (er brain) is.  Argh not one short or contrarian fund.

My 401k Investment Choices

So fine…I will put future contributions in cash for a little bit and then jump back in the market when the market corrects saving me a few percentage points.

That’s when I notice that the freaking cash account has a .95% expense associated with it! You are going charge me to hold my cash? And charge me a boat load at at that!?

So frustrating.

22 Responses to Another Reason I Hate my 401(k)

  1. If there’s anything we can guarantee in life it’s that people who pull the strings are going to figure out how to take more of what you rightfully had. Pretty soon you’ll be glad they only charged .95% on cash because they’ll either raise the rate or figure out how to make that look like a better option than whatever else they propose in the future.

    • Wow I am not that cynical! I believe whoever is the advisor on the account is just taking advantage of a very deep contractual relationship since the 401K is done through my PEO, professional employee organization.

  2. The more I learn about retirement accounts, the more I want to just keep all my money. I haven’t gotten there yet, but I might be there fairly soon.

  3. It’s nice the way that works isn’t it. You get charged for every little thing you do, as if you don’t pay enough already. At least if they were doing some sort of consulting they could charge for that. however, in this scenario they do nothing other than exactly what you tell them, and then you get to pay for the privilege. Forgive me for being cynical, but why does everything have to be such a racket? I agree though, last time I heard talk every other day about how the market was reaching new highs was in late 2007, how did that turn out?

    • Well eventually it will go higher I am just not sure now is it. For example, the S&P hasn’t hit 500 since the last time it hit 500.

    • I can’t but I don’t think it’ll matter. The 401k is done through my PEO…they also administer our health care, paychecks, etc.

  4. Hi Evan, that 6% match is pretty incredible. My thought on that is if you work for a privately owned firm, the partners are able to stash much more of their W-2 income and their match (which is more than 6%, in probability), since it is based on how much participation is realized by their workers.

    You most likely know this, but for PK and ‘retireby40′, there is a built-in administrative cost beyond the .95% for those funds and your plan. The advantage for a plan like this (Principal? ITT Hartford? John Hancock?) for the owners is that they pay nothing for the plan benefit; it is all rolled into the fees paid by participants, and sometimes the company gets a ‘remittance’ fee to offset those fees paid by owners in their funds.

    I’m not saying this is unfair or wrong. It is just a business decision. A drag to pay high fees, and the only way to get your money out is to quit. Been there. Ugh. Continued success to you, Evan.

    • It actually is even more interesting than that. My company is a subsidiary of a HUGE financial/insurance institution. So the bosses and 92% of the workers are actually on their plan. The other 8% (which I am part of since I am back office support) are on this plan and it is built into our paychecks, health benefits etc. (it is what is known as a PEO).

  5. Looks like you are one of those people who are going to lose $155,000 in 401K fees: http://www.lazymanandmoney.com/your-401k-is-costing-you-155000/ (if you believe the analysis done there).

    I’m not surprised there isn’t a short fund, that’s pretty rare in a 401k I think. It is pretty weird that you can’t put the money in cash without a lower expense.

    Can you petition your work to for a better 401k plan? If you are a subsidiary of a huge financial company, you’d think that other employees would be informed and jump on board.

    • Just going over comments and I called my 401k company – looks like I have to approach our office manager who is the administrator on the account.

      I am thinking a light email asking if I can take a look at the funds available for us to choose from?

  6. Hi Evan,

    I’m in Canada, your 401k is equivalent to our RRSP. We have much the same problem here. Companies that offer group pension plans, go with big name fund companies for various reasons. A big part is liability if things go wrong.

    In Canada we look at MER’s in these type of plans of between 2-3% as being average (very high) The funds offered are limited so its very frustrating. I am surprised about the .95% fee you are being charged to hold cash. We have an option in our plan to do GIC’s (not really advertised but if you ask it will be offered) at a low interest rate. They don’t charge to hold these – I assume they make money on the spread. They give you 1% and lend your money out and make 2% somewhere else.

    I’m not sure how much you want to complain about your plan with your HR at your work, but in the US it is possible. I would start by reading a book called “Stop the retirement rip-off”. It’s a US book and applies to your laws. You start by sending a letter to your HR nicely bringing to their attn. to your concerns. Then escalating the matter.

    It’s time that we (the everyday worker) stop getting gouged by fee’s and get a better system where we keep more of our money and fund companies steal less of it for little to no advice/management of our funds and planning as individuals.

    • I called this morning to see if there was something not advertised – Nope.

      Our HR/Office Manager is a fantastic woman. I just didn’t want to have to go there, but I am thinking an email might have to be done.

  7. When I used to work for a large company that offered to match a percentage of my 401K contribution, I used to say some of the same things you are saying. Now that I am self employed, I wish someone would offer to match part of my contribution! 401ks are popular because they do offer a way to avoid paying taxes at least until you take the money out. I agree that charging you money to hold your 401k in cash is ludicrous at best. I am not a big fan of financial institutions and all their fees and charges. It still beats putting the money under your mattress though!

    • I hear you! I am not overlooking the awesomeness that is the match. Couple grand literally for free? Hell yeah!

      As part of my job I sometimes calculate retirement need/surplus for clients. I am always amazed when I see a full 100% match dollar for dollar. I always think that the client doesn’t know how lucky he or she is.

  8. Holy sh!!

    At that rate, it almost would be better to forego the match and the tax break and just invest your money in Vanguard or Fidelity funds. Better to have your money in a Roth IRA than to be nicked and gouged every step along the way.

    • If I was a bit more weary about the future (i.e. a 20% drop in the markets) I would 100% agree with you. I just think we are going to see a bit of a dip.

      But it is frustrating, isn’t it?!

  9. These fees are a little high. However why would you forgo a dollar for dollar match up to 6%. That is just horrendous math. Even a lower cost alternative is going to be around a half of a percent. Hmmm let’s see….assume a 50k salary and you contribute 6%. They match your 3,000 dollars. Let’s also assume you have a 100k balance. The expense ratio costs you around 1k/year instead of the $500 a year you might find in a low cost IRA. Congratulations you have just saved $500 but have managed to lose out on 3k.

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