What Exactly Are All These Fidelity 401k Fees?
My employer used to run its 401k plan through Fidelity, one of the more popular brokerage services—and 401k providers—on the market. When I logged onto the Fidelity NetBenefits website and took a look at my account, I had only one question: What exactly are all these Fidelity 401k fees?
According to Investopedia, a study by TD Ameritrade revealed that only 27% of investors knew how much they paid in 401k fees, while 37% didn’t realize they paid fees at all. I was determined to step out of the 73% who weren’t sure exactly where their hard-earned money was going. Similar to my own personal Roth IRA account with Edward Jones, fees were taking a bigger bite out of my investments than I first realized.
Where can I find my Fidelity 401k fees?
Whether due to my own ineptitude, or through deliberate camouflaging on Fidelity’s part, I could not for the life of me figure out what these additional fees were. The info that I sought is information that your 401(k) provider must supply you—yet I could not locate and account for these mysterious fees. A few days after giving up on Fidelity’s website, I happened to receive an email with Fidelity’s annual prospectus disclosure and viola, a CTRL F later and I finally uncovered the fees that were eating up nearly one percent of my account on an annual basis. You can find this required disclosure information under the Plan Information and Documents tab on your account.
Assuming I’m not the only one who sucks at navigating an unfamiliar financial services website, I wanted to spell out those fees in somewhat plain English. For those who don’t have a 401k plan through Fidelity, this information should still prove somewhat valuable, as it allows you to compare the fees in your own plan to another provider. I had a next-to-impossible time finding my own 401k provider’s fees, never mind search for those of competing plans.
Retirement account fees are like the rust eating away at your engine. You may not notice the small leak that they cause, but over time the amount of oil spilled is significant. I don’t know shit about cars so I hope that analogy had the desired effect. Fees aside, if you don’t participate in your company’s 401k plan, I would certainly recommend doing so in order to receive any company match, and would likely recommend it even if you don’t receive a match.
Now, let’s take a look at the Fidelity 401k fees that I’m paying.
Expense Ratio – Individual fund fees that you’ll deal with regardless of you 401k provider
My Cost: 0.015%, or $15 of $100,000 portfolio – (this is the only fee that I was aware of)
Most of us know that we’ll pick from a list of several funds within our 401k plan to invest our money, and these funds come with a fee known as an expense ratio, ranging from .001% to a full 1.0%. Of course, I’d recommend a low-cost fund such as one that tracks the S&P 500 index, often on the low end of the fee spectrum. Even a target date retirement fund, which will likely cost an extra tenth of a percent but will rebalance your investments automatically, is a great low-cost option. Actively managed mutual funds will cost you anywhere from half a percent to more than one percent, and you don’t often get what you pay for. When I first began investing in my 401k, I assumed this was the only fee I had to concern myself with. Turns out, like usual, I was wrong.
It’s important to keep expense ratios low, but even more so when your account is bleeding fees worth an additional percent of your account balance. In my case, I invested in the Fidelity S&P 500 fund, FXAIX, which carries a very low expense ratio of 0.015%, or less than two-hundredths of a percent. Control the fees you can control, I say.
Now, for the Fidelity administrative fees that I didn’t know I was paying. A large portion of my net worth is tied up in index funds, including roughly $150,000 in my employer-sponsored 401k plan. But let’s go with a $100,000 portfolio as an example to keep the math even simpler.
Recordkeeping Fee
My Cost: 0.58%, or $580 of a $100,000 portfolio
For Fidelity’s 401k plan at my company, the language regarding the recordkeeping fee read: The annual Plan level fee is 0.58% of the Plan’s assets. This amount will be deducted from participant accounts proportionally based upon account balance.
Pretty straight-forward. More than half a percent of my assets are diverted to Fidelity for the recordkeeping expenses they incur to operate the plan. I don’t know how common this is among 401k plans, or what percentage of employers will go ahead and cover this rather large cost (I’ve heard that some do). But I do know that it seems a tad excessive to me, and I would prefer it to be a flat fee as opposed to corresponding directly to my individual balance. I can understand that costs increase somewhat proportionally to a company’s cumulative assets, but I very much doubt that they increase at such a rate. From what I can find, $100-200 per participant is a standard amount to pay for administrative fees. Not, for a balance of nearly $100,000, $580 per year. An amount that will only increase with my balance.
Advisor/Consultant Fee
My Cost – 0.30%, or $300 of a $100,000 portfolio
Rightfully perturbed as I was by the recordkeeping fee, I take more issue with the advisor/consultant fee, despite the lesser cost. Per Fidelity: The annual Plan level fee is 0.30% per year for the first $9,999,999.99 of the plan assets. This percentage does decrease slightly, down to 0.20%, depending on the amount invested in your company’s plan. But assuming your company has less than $10 million in assets, Fidelity gets another three-tenths of a percent for their advisory expertise.
What bothers me about the advisor/consultant fee is that I don’t use Fidelity’s advisor/consultant services. At all. As for my company, they may invite Fidelity to man a booth at a benefits fair once a year, or hold a sparsely-attended financial literacy class on occasion. Apart from those contributions, I can’t help but think we overpaid for their services. With a portfolio of $100,000, lop off an additional $300 for this counsel.
Total fee percentage: 0.895%
Total annual cost to a $100,000 portfolio: $895
To reiterate, fees add up. No matter what they’re called, or where they’re hidden, they add up. With Fidelity’s 401k plan, you can expect to pay nearly nine tenths of a percent each year in addition to the expense ratio on the fund that you hold. This may not sound like much, but when you consider that this is an annual cost robbing you a portion of the benefits of compound interest, these fees will cost you a huge amount over the course of your investing life.
I’m not trying to rag on Fidelity. My 401k fees are not on par with the Edward Jones heist. And I understand the need for bookkeeping fees from the provider’s point of view. My issue is with the secretive nature of these fees, buried in an annual prospectus. I would imagine that the annual email disclosure goes mostly ignored by my coworkers.
So how does Fidelity measure up with other 401k plans? Actually, not all that poorly. According to Investopedia, Fidelity falls in line with the industry standard:
Ranging from 0.5% to 2%, 401(k) plan fees can vary greatly, depending on the size of your employer’s 401(k) plan, the number of participants, and the plan provider.
Maybe it’s not them, it’s me. But any fee is a fee too much, especially so if they make them hard to find.
For the sake of further comparison and understanding, do you know what kind of fees are in your 401k plan?
I actually looked in to the Advisory/Consultant fee thats why I am here and I also found that its actually not a consultant fee or advisory fee but if you look at the details which is available on the activity and orders window the fee is for ROTH Deferral.
Last year my company’s 401k plan (managed by Fidelity) had a fee change which eliminated some of these hidden fees and put in place new direct fees. The new fees are a $35/year record keeping fee and an $8/year Plan Administrative fee. For the fees they eliminated, it appears that these were buried in the expense ratios of some funds. Here is the verbiage they sent us about these ‘revenue sharing’ fees:
Currently, recordkeeping costs are not deducted directly from your account and are not visible on your quarterly account statement. They are paid through fees associated with certain investment options through a common practice referred to as “revenue sharing”. Revenue share is an indirect compensation collected from certain fund companies that can be passed through to pay for a plans service providers costs. Through the revenue sharing practice, revenue from these investments are placed into a revenue credit account which is then used to pay the administrative and recordkeeping fees for the plan. The new fund line-up, which has many new funds with a reduction in expenses, will result in an elimination of the revenue sharing program for our plan.
I should note that on my account I received a one-time refund of some of the ‘revenue share’ fees. Based on my account size and funds this refund was close to $200, so the new plan certainly worked in my benefit. Note that along with this change in fees there was a change in funds – with a move toward funds with lower expense ratios. In some cases this was a move away from Vanguard funds (Institutional Index Fund – 0.035% expense ratio) to a Fidelity fund (FXAIX – S&P 500 Index – 0.015% ratio). In other cases it was a move from Fidelity funds (Freedom target funds – ~0.6% expense ratio) to Vanguard Target Retirment funds (0.055% ratios). And then in others it was just a different share class (one of the biggest surprises to me was BNYM Mellon Stable Values fund Class I = 0.69%; Class L = 0.289%)
Hmm, that’s a bit strange. Granted my 401k is through Vanguard, and last quarter they literally charged $6 of fee on a balance of close to $400k, one of my older employers had through Fidelity and the fees were quite low, AFAIR.
It varies by company depending on plan size and a handful of other factors, but Fidelity is about on par with most 401k offerings among brokerages. I happen to have a severe disdain for hidden fees–and there were more than I was expecting in my own account.
401k fees definitely can add up. As you state, though, company match makes them a no-brainer to contribute to nonetheless. However, I would argue the tax benefits can make 401ks worthwhile as well; it just is an unfortunate cost of doing business.
From my first-hand experience working as a 401k advisor at one of the larger 401k firms, non-expense ratio fees are generally passed onto employees when the employer wants to offer certain features but doesn’t want to pay for them.
Some larger firms, especially tech companies, will cover all fees besides expense ratios, but usually smaller companies choose not to as a cost-saving measure. Interestingly and thankfully, many employees are rising up to these fees and suing 401k providers and company administrators for excessive fees, stating it is a breach of fiduciary duty under ERISA.
I see this as a positive development that will benefit employees everywhere since it puts pressure to lower fees on the industry.
Awesome information–thanks for the comment! That is good to know on the employee 401k uprising. For many, a 401k is the only means of retirement savings outside of social security.
The current fees are indeed, unfortunately, the cost of doing business, but there’s no reason to think that cost can’t be lower without some of the non-expense ratio fees. Many employers likely know that the large percentage of their employees are unlikely to truly appreciate these types of fees being waived in their 401k plan, and thus are not incentivized to offer it as a benefit. Very positive development though!
Interesting! My employer uses Fidelity and we pay a flat fee of $10 per quarter (I think it’s for the record-keeping fee). I like that approach much better than the percentage-of-assets-under-management approach, though I do believe they levy some other fee as well that’s ‘pool-wide’ as you describe above. It’s been a while since I read the fee structures, so my memory is a bit fuzzy.
The previous 401(k) provider for this employer was Voya, and I was much less impressed with their approach. I was actually glad to see them bring Fidelity in! I would have been even more pleased with Vanguard, but hey, you can’t win ’em all…
I think a lot of it comes down to the size of your employer–the more employees, the better the deal you’ll be able to finagle from your provider. And generally speaking, smaller companies might not even meet the threshold for some of the larger providers like Fidelity. I’m not familiar with Voya, so you’ve given me a homework project!
size matters; my fees are tiny with the Fidelity plan through my 403b from my previous employer (largest in the state) so I keep the money there rather than rollover at this point.
The advisor/consultant fee is actually the fee that the advisors charge to the plan committee, not a fee that you pay for individual advisory services.
Yeah, I get that it isn’t individual, but I wouldn’t use their individual advisory services even if they were offered. I don’t need any of their input at all, just let me do my thing! Haha. In any case, I don’t think that’s a service that should be tied to the percentage of assets involved in the plan.
What a scam these 401k fees are! These brokers know they can get away with it too. They handle such large amounts of money for employers who have plenty of cash on-hand. And what’s the result? The losers are us, the employees, who get a chunk of their rate of return stolen from them.
Absolutely, you’re damned if you do but usually more damned if you don’t contribute to these plans. I get that it isn’t a free service and there are costs involved on the brokerage side, but to pay nearly a whole percentage of your assets each year is criminal. Most employees, and even employers, don’t know what they’re being charged and accept this as the price of doing business in a field they are unfamiliar with. Unfortunately not much for the employee to do but mention it to their HR department and hope they look into alternative plans.