401(k) Fees are Invisible, but Harsh Reality
By Mike Rowan, info@erollover.comMany investors are convinced that they pay no fees in their 401(k), 403b, or other retirement account. However, 401(k) research firms paint a much different picture of the employer sponsored retirement plan universe.
A recent study illuminates the mode and manner that employees prefer to receive information about fees and expenses associated with their 401(k) plans. The research suggests that workers participating in a defined contribution plan do not know or have a complete understanding of fees and expenses
In addition, employees favor information in simple terms. Over half (54%) of respondents prefer some form of summary information. Others (32%) would like the information to be somewhat summarized with a break-down of fees for services and investments, while 22% want a summary with a total and all-inclusive costs. Only 31% desired a highly detailed account of fees and expenses. Fourteen percent had no preference.
Employers in the Dark on 401(k) Fees
Moreover, employers don’t perceive the knowledge gap on plan fees as astutely as they should. While the majority of employers (73%) believe that their employees have a good grasp on 401(k) fees, only 29% of the 3,466 workers polled indicated that they were aware of fees.Employers can increase this percentage by educating workers about 401(k) investments. In the study, workers who proactively monitor and manage their retirement savings are more than twice as likely (35% compared to 16%) to be aware of fees than those who don’t involve themselves.
401(k) Fees Can be up to 50% of your Account Balance at Retirement
For those workers that are unaware of the fees and expenses associated with their retirement savings plan, their ignorance can translate into great financial losses. After all, fees, whether administrative, transactional or managerial, can eat up as much as 50% of a retiree’s ending 401(k) or 403(b) plan balances, finds CJM Fiscal Management, an independent financial advisory firm.Valuable 401(k) Expense Tools
If you are interested in finding out about your own expenses, Brightscope does a great job of analyzing your Company 401(k) plan. A sample 401(k) analysis is shown in the graphic below. Please visit their site at www.brightscope.com
Congress is on the trail as well
Currently, lawmakers are in the midst of developing legislation that would safeguard employee interests by forcing the divulgence of retirement plan fees and expenses. Recently, the House passed a bill, the 401(k) Fair Disclosure and Pension Security Act, which Washington insiders say is also likely to pass in the Senate.The bill instates that 401(k) plan administrators disclose fees taken from participants’ accounts in a single dollar figure in a worker’s quarterly statement. Further, it would require 401(k) service providers and plan administrators to disclose fees charged on 401(k) plans to be enumerated and packaged into four categories: administrative, investment management, transaction and other fees.
As with almost everything else in life, 401(k) plans are not free to the end user. However, it is important for you to know how much you are being charged in your 401(k) plan. All things being equal, fees such as this could devour a portion of your retirement savings.
