Most Defined Contribution/401(k) Plans typically deduct administration and advisor fees directly from participant accounts, which is often necessary for larger plans. However, smaller retirement plans have the flexibility to pay these fees from outside of participant accounts.

The impact of fees on portfolio growth is significant, especially when compounded over time, and this effect is amplified by high fees. When coupled with the practice of deducting fees from participant accounts, it can hinder participants from achieving their long-term retirement goals.

The chart below illustrates the 10-year growth of $100,000 for the period ending on 12-31-2023 across three portfolios invested in our Vanguard Equity 70 Model, consisting of 70% equities and 30% bonds. Portfolio one had no fees debited from it, while portfolio two incurred a 0.75% annual fee, and portfolio three was charged a 1% annual fee. All fees were deducted quarterly.

Based on the above results, the portfolio with the 0.75% annual fee would incur about $13,900 in costs over a 10-year period, while the portfolio with a 1% annual fee would amount to about $18,320. If your 401(k) fees are being debited from your account, speak to your employer to explore alternative options available to you.