Week 10 Day 6: Check Your 401(k) Fees Today

Every 401(k) plan is required by law to provide a fee disclosure document (usually annually). Find yours. Look for the expense ratios of the funds you are invested in. If any are above 0.50%, look for a cheaper alternative in the plan menu. If no cheap index funds exist, contact HR and ask why.

Here is a practical walkthrough. Step 1: Log into your 401(k) provider's website (Fidelity NetBenefits, Vanguard, T. Rowe Price, etc.). Step 2: Find the 'Plan Information' or 'Fund Options' section. Step 3: Look at each fund's expense ratio. Step 4: Identify the cheapest broad index funds available (often called 'Index,' 'Passive,' or 'Institutional' in the fund name). Step 5: If your current allocations are in expensive funds, change them. Common 401(k) fund names to look for: 'S&P 500 Index' (should be 0.01-0.05%), 'Total Bond Index' (0.03-0.10%), 'International Index' (0.05-0.15%). Avoid funds labeled 'Growth,' 'Value,' 'Select,' or 'Active' unless their expense ratios are competitive. Some 401(k) plans offer institutional share classes that are cheaper than retail -- Fidelity 500 Index Fund in a 401(k) might be 0.015%, while the retail version is 0.015% (Fidelity is generally excellent on this). Other plans offer expensive proprietary funds. Know what you own.

The 401(k) fee landscape is regulated by ERISA (Employee Retirement Income Security Act), which imposes a fiduciary duty on plan sponsors (employers) to offer investments with reasonable fees. Despite this, a 2023 BrightScope/ICI analysis found that the asset-weighted average 401(k) equity fund expense ratio has decreased from 0.74% in 2000 to 0.36% in 2022 -- improvement, but still 10x higher than the best available index funds. The variance between plans is enormous: large employer plans (5,000+ participants) average 0.27%, while small employer plans (under 100 participants) average 0.65%. Lawsuits alleging excessive 401(k) fees have become a significant legal category, with major settlements from Northwestern University ($30M, 2021), MIT ($18M, 2022), and others. If your plan has above-average fees and no low-cost index options, you have leverage: a polite email to HR citing the fiduciary duty under ERISA Section 404(a) and requesting competitive index fund options often produces results.