Fee Disclosure in your 401k Plan

Brokers and 401(k) providers often claim to sell inexpensive 401(k) plans, sometimes even promising to operate plans for free. Here’s how they do it: Providers offset up-front discounts by making employees select from investments with very expensive fees. While an investment with 1.4% fees might not sound like much, a mere 1% increase in fees can decrease the value of a $100,000 investment by $66,254 over 20 years, assuming an annual return of 7%. Unlike administrative fees, investment fees are not directly billed. Instead they are subtracted from individuals’ account balances each reporting period, reducing individual returns, often without knowledge of investors. These fees are not one-time charges, but are deducted from individuals’ accounts for as long as they participate in the plan. And since investment fees grow as individual accounts balances grow, those who save the most are penalized the harshest. Plan providers rarely discuss investment fees. In fact, by law they are only required to disclose investment fees during enrollment, after employers have purchased the plan, making it almost impossible for participants and employers to effectively comparison shop. This all will be changing very soon, as the regulators will require full fee disclosure. The best plan of action is to have an independent analysis done on your plan.