Why is record keeping fee so high?

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Topic Author
AC1984
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Why is record keeping fee so high?

Post by AC1984 »

My wife started a new job and with it a new 401k through Fidelity. All contributions are in the Fidelity Total Stock Market Index (FSKAX), which has an expense ratio of 0.015%. She started contributing in September and had a $9.50 record keeping fee with less than $4,500 in the fund. There was also a $1.50 administrative fee. What gives? Does that math make sense? I have way more than that in other similar funds in my 401k with way less taken out for "record keeping." Is that considered different than the expense ratio?
sailaway
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Re: Why is record keeping fee so high?

Post by sailaway »

The fees you mention are often flat fees, per account. Sometimes we don't notice them because the company covers them rather than passing them on to the employees, but the fees themselves are pretty standard.
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vectorizer
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Re: Why is record keeping fee so high?

Post by vectorizer »

It costs per account to service a 401k plan. Some employers cover the fees. Some charge flat per account like your wife's. My wife's former employer offered very low expense ratio "institutional" versions of Vanguard funds, but charged her $15 per quarter. Many employers use high expense ratio funds and the 401k plan costs are more than covered by the fund expenses.

If I had to choose, I'd rather see low expense ratio fund offerings with explicit fees than high expense funds with high but hidden plan fees...the flat fees hurt when you have a low balance, but are better as your balance grows. Of course the best are employers who offer great funds and cover the fees themselves, but I think that's pretty rare.
dukeblue219
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Re: Why is record keeping fee so high?

Post by dukeblue219 »

Yes, it's different from the expense ratio. Remember that the ER is baked into the fund's return. You'll never "pay" an ER.
prd1982
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Re: Why is record keeping fee so high?

Post by prd1982 »

Morningstar had an article about this: https://www.morningstar.com/articles/1 ... t-provider
backpacker61
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Re: Why is record keeping fee so high?

Post by backpacker61 »

A lot of this is the cost associated with legal compliance for a 401K plan, which are considerably more complicated than IRA's for example. The largest employers (Fortune 50) can sometimes cover the administrative costs as an employee benefit, but it's often not possible for mid-size or small firms.

Employers are considered "fiduciaries" for 401K plans, and will often retain counsel to provide oversight for an employer plan's compliance with legal requirements for these retirement plans. If there are tens of thousands of employees, that can be amortized to a very small amount per account, and covered by the employer in some cases. For smaller plans, it can be more difficult.

Your wife's plan sounds pretty good on the whole, and I would contribute to it without reservation.
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ruralavalon
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Re: Why is record keeping fee so high?

Post by ruralavalon »

AC1984 wrote: Thu Oct 21, 2021 5:06 pm My wife started a new job and with it a new 401k through Fidelity. All contributions are in the Fidelity Total Stock Market Index (FSKAX), which has an expense ratio of 0.015%. She started contributing in September and had a $9.50 record keeping fee with less than $4,500 in the fund. There was also a $1.50 administrative fee. What gives? Does that math make sense? I have way more than that in other similar funds in my 401k with way less taken out for "record keeping." Is that considered different than the expense ratio?
A $9.50 record keeping fee, and a $1.50 administrative fee, are not high fees, they are low fees.

It costs money to keep records of each participant's account and to administer a plan, someone has to pay those expenses. It's much better to have these low fixed fees than to have these fees be based a percentage of your account.
Last edited by ruralavalon on Thu Oct 21, 2021 6:18 pm, edited 1 time in total.
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tenkuky
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Re: Why is record keeping fee so high?

Post by tenkuky »

AC1984 wrote: Thu Oct 21, 2021 5:06 pm She started contributing in September and had a $9.50 record keeping fee with less than $4,500 in the fund. There was also a $1.50 administrative fee. What gives? Does that math make sense? I have way more than that in other similar funds in my 401k with way less taken out for "record keeping." Is that considered different than the expense ratio?
Is that supposed to be levied quarterly? Annually?
Either way, those are not large numbers by any stretch and would be rather inconsequential as the balance grows.
You don't want an AUM fee that grows as your balance grows.
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Topic Author
AC1984
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Re: Why is record keeping fee so high?

Post by AC1984 »

ruralavalon wrote: Thu Oct 21, 2021 6:11 pm
AC1984 wrote: Thu Oct 21, 2021 5:06 pm My wife started a new job and with it a new 401k through Fidelity. All contributions are in the Fidelity Total Stock Market Index (FSKAX), which has an expense ratio of 0.015%. She started contributing in September and had a $9.50 record keeping fee with less than $4,500 in the fund. There was also a $1.50 administrative fee. What gives? Does that math make sense? I have way more than that in other similar funds in my 401k with way less taken out for "record keeping." Is that considered different than the expense ratio?
A $9.50 record keeping fee, and a $1.50 administrative fee, are not high fees, they are low fees.

It costs money to keep records of each participant's account and to administer a plan, someone has to pay those expenses. It's much better to have these low fixed fees than to have these fees be based a percentage of your account.
Makes sense, I just got scared the $9.50 was proportional to something and it seemed like a lot for such a low amount if it would be that much higher as it grows.
placeholder
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Re: Why is record keeping fee so high?

Post by placeholder »

Some plans use flat fees which is good for large accounts and bad for small others add a bit to the fund ers which is the other way around.
wander
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Re: Why is record keeping fee so high?

Post by wander »

My 401k (Fidelity) plan also charges "advisory fee" although I never call them for advice.
Lionel Hutz
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Re: Why is record keeping fee so high?

Post by Lionel Hutz »

Figure there are costs to run the funds, which are expressed entirely in the Expense Ratio.

Then there are costs to run the 401k, expressed as “record keeping/maintence fees” among others. Besides that the operations of a 401k are far more complex than the operations of an IRA, yes 401ks also have the multitude of additional compliance costs re: ERISA.

As the Retail fee war has severely driven costs down in IRAs and brokerages it can make 401k costs appear excessive by comparison. But it’s not fair to compare the two.

That said, on average larger employers tend to have lower fees: better leverage, economies of scale, etc. If you see fees like that it means the employer is passing as least some of the cost onto you.
bugleheadd
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Re: Why is record keeping fee so high?

Post by bugleheadd »

yep, as mentioned its a flat fee. i have 401k through fidelity too. i am charged $60 a year for recordkeeping
Walobolo
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Re: Why is record keeping fee so high?

Post by Walobolo »

Also have Fidelity. Record keeping for my 401k is $8 per quarter. I am not sure how the administration fee is calculated but mine has between $1.50 and $2.00 per quarter for the last 5+ years.
tashnewbie
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Re: Why is record keeping fee so high?

Post by tashnewbie »

Check the 401k's Summary Plan Description (SPD) to see how the fees are charged. It's likely a flat fee that's assessed monthly or quarterly.

As others have said, a (edit: reasonably low) flat fee is better than an assets under management fee (percentage of the balance), at least as the account grows.

My 403b charges 0.12% as an admin. fee, and I'm happy to use the plan. I'd prefer your wife's plan's fees.
Last edited by tashnewbie on Fri Oct 22, 2021 8:20 am, edited 1 time in total.
flyfishers83
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Re: Why is record keeping fee so high?

Post by flyfishers83 »

Definitely plan specific. Spouse and I both have 401ks at Fidelity. Hers charges a quarterly record keeping and advisory fee. Both a percentage of assets. Mine charges a quarterly recordkeeping fee and some other administrative fee that has only been charged once this year.
niagara_guy
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Re: Why is record keeping fee so high?

Post by niagara_guy »

would you rather your wife worked for a non-profit that had a 403b with fees over 2% per year? On 500k that would be fees of 10k per year.

She is paying $11 per month, that's $132/year assuming it's a flat fee.
niagara_guy
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Re: Why is record keeping fee so high?

Post by niagara_guy »

I still have a 401k at Fidelity from an earlier job. They now charge me $37/quarter flat fee and 0.015% on my S&P 500 index fund. Overall not a bad deal.
saintsfan342000
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Re: Why is record keeping fee so high?

Post by saintsfan342000 »

My employer charges 0.42% annually. Thats equivalebt to your flat fee at an account balance of $32,400. So your fees don't strike me as unreasonable. The good news for you and me is that we both have fund choices with rock-bottom expense ratios.
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Topic Author
AC1984
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Re: Why is record keeping fee so high?

Post by AC1984 »

Thanks for the comparisons, just wanted to know since it’s different than my work’s plan.
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ethan_imagine
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Re: Why is record keeping fee so high?

Post by ethan_imagine »

I see similar administrative fees and record-keeping fees in my 401k plan with Fidelity. These fees are charged once per quarter, or 4 times a year. For reference, my total balance is about $106k. Fidelity charges me $50 for administrative and record-keeping fees combined, so that's 0.047%.

I hold brokerage accounts (non-401k, after tax) with Vanguard too, but I have never seen anything like the administrative fees or record-keeping fees. I wonder why? Does Vanguard also charge them but just doesn't show it in the activity history, or they are waived?

I agree with some replies that these fees are in the reasonable range; however, one may question if there are better options, with some comparisons.
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PersonalFinanceJam
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Re: Why is record keeping fee so high?

Post by PersonalFinanceJam »

ethan_imagine wrote: Sat Oct 15, 2022 9:18 am I see similar administrative fees and record-keeping fees in my 401k plan with Fidelity. These fees are charged once per quarter, or 4 times a year. For reference, my total balance is about $106k. Fidelity charges me $50 for administrative and record-keeping fees combined, so that's 0.047%.

I hold brokerage accounts (non-401k, after tax) with Vanguard too, but I have never seen anything like the administrative fees or record-keeping fees. I wonder why? Does Vanguard also charge them but just doesn't show it in the activity history, or they are waived?

I agree with some replies that these fees are in the reasonable range; however, one may question if there are better options, with some comparisons.
Apple's and oranges. 401K plans have reporting, compliance, and administrative requirements which providers charge for. Since a qualified plan is set up by an employer, they can choose how the fees will be covered. Some employers cover all the fess, some pass on some or all the fees to the employee. Some will cover fees for active employees but not for employees who have left. I personally have had 401k plans administered through Vanguard which cover all of those scenarios. My current 401k with Fidelity, the employer pays all fees outside the ER of the funds.

Regular brokerage/IRA accounts may or may not have ongoing administrative fees or per item charges for things such as paper statements or transferring out. You have to look at the providers fee schedule to see what may apply. Neither Fidelity or Vanguard have administrative fees for just having an account. Vanguard will charge you for paper statements if you don't have a certain level of assets there. It's easily avoided by receiving statements electronically. most low cost brokerages will have few if any on going fees, but you do need to look at their fee schedule to see what may apply in your situation.
TootsieWolf
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Re: Why is record keeping fee so high?

Post by TootsieWolf »

If you've got a low balance, flat fees do not work in your favor. But when your balance rises, you're better off with the flat fee.
Last quarter I paid:
Recordkeeping $140
Advisory fee $275
Administrative $42
401(k) at Vanguard. Fees were assessed as a percentage of balance.
stocknoob4111
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Re: Why is record keeping fee so high?

Post by stocknoob4111 »

I have a 401k with my former employer. Record keeping fees are $7.50/quarter. I left this job mid last year and the fees didn't change. I called Fidelity and have also read the plan docs, both the rep and the docs state 7.50/quarter and there isn't a separate schedule for former employees.

Question - if they had a separate schedule of fees for ex employees the plan documents have to spell that out correct?

Also the plan with my current employer charges $9.50/quarter but to date that fee has never been charged.

And now mysteriously the fee from my former employer has also stopped because the last 2 years it was charged in mid Jan for Q1 but this year it hasn't. Confusing.
lakpr
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Re: Why is record keeping fee so high?

Post by lakpr »

stocknoob4111 wrote: Thu Feb 02, 2023 10:04 pm Question - if they had a separate schedule of fees for ex employees the plan documents have to spell that out correct?
Correct.
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