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Richard Rider

Federal 401(k) plan proves such pensions can have tiny fees – debunking labor union claims

Public employee pension apologists proclaim that 401(k)-type plans (defined contribution plans) are horribly expensive, with “Wall St” gobbling up much of the profits with fees, etc. Sadly for them, there’s a major government 401(k) plan that, in effect, totally debunks this nonsense.

The WALL ST JOURNAL did a story on the federal Thrift Savings Plan (TSP) — essentially a 401(k) plan for federal employees. The theme of the article was why it was unwise for retirees to roll their plans over into “retail” IRA plans, because of the considerably higher fees. True enough, but what’s most important is to note the annual cost to employees of TSP. Damn near zero.

EXCERPT: Due to its large size—with 4.6 million participants and $431.6 billion in assets, the TSP is the nation’s largest 401(k)-type plan—and the fact that the federal government subsidizes some of the plan’s administrative costs, the TSP has an average cost of 0.029% a year. That translates into a fee of 29 cents for every $1,000 invested—or $29 on a $100,000 balance.

That’s essentially three one-hundredths of one percent. Good luck finding a government (defined benefit) pension with anywhere near that low a cost.