Class action lawsuit claims retirement fund paying between 0.11% and 0.14% expense ratios is unreasonable and should be closer to 0.015%.

From the WSJ

So says a class-action lawsuit filed this month against H-E-B LP, which alleges that the San Antonio-based company has been overpaying for index funds in its employees’ retirement plan. Annual expenses on some of those market-matching funds run between 0.11% and 0.14%—but should instead be as low as 0.015%, the lawsuit argues.

It’s starting to look as if any fee you don’t need a microscope to see may be too big to last. The suit against H-E-B is among the newest of several recent cases to contend that merely cheap isn’t good enough for retirement investors. And it’s the latest sign that the cost of investment management is on its way to zero.

How low should the fees on retirement funds be? In 2018, says the Investment Company Institute, a trade group for the asset-management industry, 401(k) investors paid an average of 0.41% in annual expenses on stock funds and 0.34% on bond funds.

By that standard, H-E-B’s index-fund expenses between 0.11% to 0.14% seem like a bargain. But costs have fallen so far in recent years that those low-sounding fees are up to seven times higher than essentially identical funds charge, the suit alleges.

Fees in 401(k) and other federally regulated retirement plans must be reasonable—although the law doesn’t define what that means. In deciding such cases, “the courts have not said ‘the cheapest option is the only thing that’s reasonable,’” says David Levine, a principal at the Groom Law Group in Washington, D.C., who advises retirement-plan sponsors. Several other factors, such as the quality of service and the possibility of superior investing results, can justify fees above rock-bottom.

 

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One of my friends’ employers 401k options were absolute garbage, all of them had around 1% expense ratio or higher. Made it real difficult for them to justify investing in their 401k.

 

AC