Your Boss Doesn't Understand Your 401(k) Plan's Fees Either

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401k Boss work fees401(k) plans can be extremely useful tools to help you save for retirement. Lately, though, they've come under fire because of their high and often hard-to-figure-out fees and their limited investment options, which turn what should be a smart savings vehicle into one that robs employees of their investment returns.

Workers have tended to blame their employers for giving them bad investments at high costs. But a recent study from the Government Accountability Office found that when it comes to understanding the nuts and bolts of the retirement plans they offer, the bosses are just as much in the dark as workers are.

That's alarming, particularly considering that the companies that sponsor plans have a duty to their workers to look after their interests.

It's All Greek to, Well, Everyone

The GAO study found that employers have the same problems ferreting out esoteric fees that workers face.

For instance, revenue-sharing arrangements under which mutual fund companies collect fees from fund shareholders and then divert some of the fee income to plan service providers can boost the total fees that 401(k) participants pay. Moreover, because these fees are usually charged on a percentage basis, they get larger as workers save more -- even though the services provided typically remain the same.

The study referred to one employer that actually paid record-keeping fees that were 16 times greater than it believed it was paying, because it didn't understand its revenue-sharing arrangement with its services provider. In addition, some investment options, such as variable annuities and other insurance products, come with additional expenses that add to the fee burden.

Moreover, the smaller the employer, the more likely it is you'll pay higher fees.

The GAO cited figures from BrightScope saying that plans with less than $10 million in assets pay 1.9% annually for 401(k)-related services, compared to just 1.08% for plans with more than $100 million. So if you work for a tiny company, you can expect your 401(k) choices to be more expensive.


Who Really Pays the Tab

Unfortunately, the main reason employers don't know about the fees their plans incur is that they tend not to pay them. Not only do workers pay fund management costs from their investments, but service providers often take record-keeping and administrative fees directly from plan assets as well.

In response to the GAO report, the Department of Labor is trying to educate employers about their responsibilities in providing retirement plans. In the end, though, it's up to you to make sure your employer's 401(k) plan makes sense for you. If the fees are too high, either ask for a change or choose other methods, such as IRAs, to save for retirement.

Motley Fool contributor Dan Caplinger has no one to blame but himself for his self-directed 401(k). You can follow him on Twitter here.


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7 Comments

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Rick Bueter

The 401k plan is a financial indoctrination program sponsored by government under the influence of Wall Street to lure the savings of Americans out of safe savings places and into the hands of Wall Street firms. Youtube video explains it all. http://www.youtube.com/watch?v=zdopmRFK4rw

June 15 2012 at 12:01 PM Report abuse rate up rate down Reply
bill griffis

my bosses was not allow to give us advice on them. we had to call the admisnistrator for that information

June 15 2012 at 9:46 AM Report abuse rate up rate down Reply
n5monthsocrapleft

the muslim clown tanked our economy n 401k's n drove america into economic disaster n now your retirement plans n home prices are tanked n are not coming back untill this muslim clown is removed from our white house in handcuffs. ! !

June 15 2012 at 8:41 AM Report abuse +2 rate up rate down Reply
anamericanbeaver

Why don't employerr use SEP's,,, instead of 401k's??
Just gie the employee their years worth of retirement annually,,, the employee has it, they can invest it anyway they want, and if the complany goes out of business, the employee has their money.
And, a lot easier, and cheaper, to maintain than a 401k,,, with who knows who investing your money for you. When
you leave the job, the money is in YOUR account, not the company's,,, you can't take it out til retirement without penalty, but... its yours to manage.
SEP,,, think about it.....Simplified Employee Pension,,, as your boss about it...

June 15 2012 at 7:38 AM Report abuse rate up rate down Reply
paulie

This article has the whiney tone of a child who does not want to pay the piper.If you think a 401k is simple to set up administer or manage you are delusional.as an employer I pay admin fees , tax filing fees , fees to have financial people talk to employees.this is life no one works for free.If you dont want to pay fees dont participate.Your outside options stink.I had a friend complain he could not put as much money away because he was doing IRA instead of his emplyers 401k.So he screwed himself for about 10k per year in deductioins to save 200.0 per year in fees.If you want to be in pay the cost.I dont want the cheapest anything I want the best.

June 15 2012 at 7:27 AM Report abuse rate up rate down Reply
Don

I'm just so sick of hearing about one corrupt, criminal (and very likely Republican-inspired) greed graft event like this (and there are plenty more), I'm ashamed to call America my home these days. Hubris-driven bums -- they're in our government, Wall Street, entertainment, sports, you-name-it. Bums. Bums: did I already say that?

June 14 2012 at 5:13 PM Report abuse -1 rate up rate down Reply
nbijohn

I own and run a small company with about 45 employees and offer our employees a 401K plan. Fee's were based on a percent of assets in the plan. When the plan was new, the amount of money being taken in fees was small. However since the fees are based on plan total value, as the plan grows the total taken in fees also grows. That is actually pretty obvious and is easy to understand. The question that I asked was exactly what was the actual percentage fee being taken and how could I lower that cost? It took me over 2 years to get a somewhat clear idea of the answer. None of the financial professionals I asked were able or willing to give me a clear answer. Eventually I beleive that I understood the fee structure and was able to take some actions which reduced the plan fee costs. We are still faced with the fact that fee's are based on a percentage of total assets in the plan. So fee's do increase as the plan grows. Fees should be reduced as the plan assets grow. Inspite of this, the 401K plan is the easiest and most effective way to save for retirement. Anyone working for a company offerring a 401K plan should definitely participate in the plan at whatever level they can afford.

June 14 2012 at 3:22 PM Report abuse rate up rate down Reply
kent05r

If this is true and the mission of GOA is oversight; What the hell happen to the money. GOA.
Is this accountability for Barney Franks, HUD,VA, all the scam agencies set up to steal the publics tax money.
This just adds to the list of agencies that we do not need. So far the ones that need to cut down to size is DEP,EPA and now GOA., some good but mostly wasted tax dollars. as this story proves. Worthless and non accountable to anyone.

June 14 2012 at 3:08 PM Report abuse +1 rate up rate down Reply
kent05r

GOA Mission is to support the Congress in meeting its constitutional responsibilities and to help improve the performance and ensure the accountability of the federal government for the benefit of the American people. We provide Congress with timely information that is objective, fact-based, nonpartisan, nonideological, fair, and balanced.
Our Core Values of accountability, integrity, and reliability are reflected in all of the work we do. We operate under strict professional standards of review and referencing; all facts and analyses in our work are thoroughly checked for accuracy.

Our Work is done at the request of congressional committees or subcommittees or is mandated by public laws or committee reports. We also undertake research under the authority of the Comptroller General. We support congressional oversight by
auditing agency operations to determine whether federal funds are being spent efficiently and effectively;
investigating allegations of illegal and improper activities;
reporting on how well government programs and policies are meeting their objectives;
performing policy analyses and outlining options for congressional consideration; and
issuing legal decisions and opinions, such as bid protest rulings and reports on agency rules.

June 14 2012 at 3:04 PM Report abuse rate up rate down Reply