Wal-Mart Takes Flak for Its 401(k) Fees

A lawsuit alleges that excessive charges cost employees millions.

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Updated on 05/09/08:An earlier version of this article linked to a report in Pensions & Investments. This report was originally published in Financial Week.

You might expect the nation's largest companies to offer 401(k) plans with low fees, especially since these firms most likely qualify for low-cost institutional share classes of mutual funds (the cost is low because institutional investors buy shares in large blocks). But that's not always so.

Wal-Mart, the country's largest employer, is facing a lawsuit that claims the company invested in expensive mutual funds instead of lower-cost alternatives, reports Financial Week.

The suit, a class action filed by Jeremy Braden, a Wal-Mart employee in Missouri, compares the fees of many of Wal-Mart's actively managed funds with those of Vanguard, known for its low-cost index funds. "In one example, the suit compares the AIM International Growth fund—an actively managed retail fund in the Wal-Mart 401(k) plan that has an expense ratio of 1.59 percent of assets—with Vanguard's International Growth fund, also an actively managed retail fund with a fee of 0.55 percent of assets. The difference for Wal-Mart plan participants: $2.8 million less in fees over a six-year period with the Vanguard offering," reports Financial Week. What's more, if Wal-Mart had invested its money in Vanguard's passively managed index funds, the plan would have been worth an estimated $140 million more over that six-year period, according to the story.

Sadly, most of us have no idea how much we're paying in 401(k) fees. But soon, companies may be required to disclose the fees their plans charge, although it's unclear what information they'll have to pony up.