Monday, September 10, 2007

Outrageous 401(k) fees

Outrageous 401(k) fees are only one thing angering participants in the plans (free WSJ Digg link). Poor or limited fund choices are also causing Hulk-like feelings.

Similarly, Christopher Davis, an analyst with Chicago research firm Morningstar Inc., wrote last fall that retirement plans were "overly focused on large-cap domestic-stock mutual funds," giving higher-performing small-cap and international funds "short shrift."

Merriman also criticized the fees plan participants were paying. For example, Inc. offered funds in 2005 with an average expense ratio -- the percentage of assets taken out of an investor's account annually -- of 1.14%, Merriman said. The average annual expense ratio for all U.S. stock funds is 0.96%, according to Russell Kinnell, director of mutual-fund research at Morningstar.
For a (possibly unfair) fee comparison, let's look at the fees on the Vanguard International Growth Fund, symbol VWIGX. Vanguard is known for funds with low fees, but this is an international fund, which tend to have higher fees. Yep, much lower than 1.14%.