[dahdum]

They do use Vanguard funds, they charge $8/month per employee to the employer to handle the 401k, and the employee pays:

Avg. fund expense of 0.10%

0.03% custodial fee

Seems like a great choice for a business.

[ucaetano]

Vanguard funds have on average 0.18% expense, with the industry having much higher than that. How do they use Vanguard funds?

[boulos]

Not all the funds are that high. The .18% vanguard quotes is their real, across customers, result. Their more active funds are higher (like VEXPX at .49%) while their larger scale Admiral funds are often as low as .05% (like VTSAX).

Vanguard ETFs offer the same rates as the equivalent Admiral class shares, so services like Wealthfront use those. Wrapping Vanguard is a lot easier these days ;)

[loeg]

Institutional class expense ratios are much lower than 0.18% average. Also, they can pick the lower cost funds.

[idunno246]

how does that compare to other fees all in? Obviously the employee cost is really good, but is the typical 1-2% employee fee company just passing that $8 onto you? Especially in lower paying companies, that could add up

[ucaetano]

$8/month = $56/year, divided by Vanguard's 0.0018 equals $31k.

So if the employee has in his 401k:

- $20k, the equivalent fee is 0.41%

- $50k, the equivalent fee is 0.24%

- $120k, the equivalent fee is 0.18%

- $200k, the equivalent fee is 0.16%

- $1M, the equivalent fee is 0.136%

[samb1729]

Could you elaborate on how you got those numbers? You lost me at $56 but I don't understand your percentages either so perhaps I'm missing something here.

[ucaetano]

Percentage = [(56/Capital) + 0.13%]

56 = cost to employer

Capital = how much the employer has in the 401k

0.13% = average fund fee

So if Capital = 200k

Percentage = [56/200k + 0.13%] = 0.028% + 0.13% = 0.16%

My guess is that they're focusing on new plans, not allowing rollover from previous plans and not allowing employees to keep the plan after they leave the company. In this situation they're able to have mostly savers with low or very low balances, and they charge on average higher fees than Vanguard and others.

[mercutio2]

$8/month = $96/year, not $56.

[ucaetano]

Correcting myself, it's $96, not $56. That bumps up the fees a bit. Sadly, too late to edit it.

[thedufer]

8 * 12 is 96, not 56.

[ucaetano]

Ha, good catch, a typo and lack of sleep propagated through the numbers :)