The Checkout

Your 401(k) Can Cost You

Kathy Lally

The number of Americans with 401(k)-style retirement plans has grown to about 50 million. But how many of those people know how much they're paying their providers in administration fees?
Not many, according to the AARP. A study the organization commissioned last year found that of 1,584 people aged 25 and over who had 401(k) plans, a whopping 83 percent had no idea how much they pay in fees.

Even if you were vigilant, you would still probably end up losing out. The fees usually appear deceptively small, ranging from less than 1 percent of assets to more than 2 percent, depending on the size of the plan and on the level of services offered. But over the course of a full working career, they can result in a 20 to 30 percent reduction of savings, according to the Center for American Progress, a liberal think tank.

The issue has become a hot topic on Capitol Hill and the hallways of the U.S. Department of Labor, which is working on coming up with new regulations to maximize workers' retirement savings.

The House Education and Labor Committee has approved, by a vote of 25 to 19, the 401(k) Fair Disclosure for Retirement Security Act (H.R. 3185).

The law would, among other things, require plan providers and administrators to better disclose fees, and to break them down into four categories: administrative fees, investment management fees, transaction fees, and other fees. To increase transparency, it would require providers to disclose any financial relationships that might constitute conflicts of interest. Workers would also get better information about the risks and returns of their investment options.
The Department of Labor would then have the authority to enforce the new rules and levy any fines.

For too long, companies in the financial services industry have maintained a stranglehold on retirement savings that they didn't earn and that don't belong to them,
said Rep. George Miller (D-CA), chairman of the House Education and Labor Committee.
The purpose of this legislation is to take these hard-earned savings away from the special interests and return them to their rightful place -- the retirement accounts of American workers.

The next step is a full vote by the House of Representatives. A spokesman for the Education and Labor Committee said it is unclear when that will happen, but if you are an employee with a 401(k) plan, now is probably a good time to start paying attention.

By Kathy Lally |  April 28, 2008; 8:00 AM ET Consumer News , Nancy Trejos
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Comments

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Two responses in four words:

1) Um, duh!

2) INDEX FUNDS.

Come on, there was even a Dilbert strip many years ago where Dogbert made fun of people for not just picking index funds for the long term! Of course, that was possibly even before the .com bust, which would be even more impressive.

Posted by: The Cosmic Avenger | April 28, 2008 11:16 AM

"Even if you were vigilant, you would still probably end up losing out. The fees usually appear deceptively small, ranging from less than 1 percent of assets to more than 2 percent, depending on the size of the plan and on the level of services offered. But over the course of a full working career, they can result in a 20 to 30 percent reduction of savings, according to the Center for American Progress, a liberal think tank."

Um, if your work offers a 401k you have two options: take it or leave it. You can't be vigilant and getting lower costs. Not possible. Even at 1-2% per year, you are still better off in a 401k versus a taxable account - especially if there is matching.

Posted by: Anonymous | April 28, 2008 12:53 PM

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