No More Hidden 401(k) Fees

If you’ve been worried that your 401(k) is sneakily ripping you off, then you’ll find some comfort in the new federal rule that took effect on July 1.

The rule requires 401(k) plan providers to disclose certain 401(k) fees, and employers to distribute these disclosures to plan participants by Aug. 30.

The idea behind is two-fold:

1) plan participants (that’s you) should be able to easily determine how much of your savings is being put toward fees and what those fees are; and

2)that employers can more easily compare retirement plans and shop around for the best options.

The new disclosure is required to be sent to plan participants at least once a year. It is required to include a list of available investments and the fund management fees associated with each. It will also outline the administrative costs of each investment option. These may include charges for services like recordkeeping, accounting and fees incurred for trades or withdrawals.

It’s not that this information was kept from plan participants in the past. It has always been “available” in some way. However, this is the first the fee information will be consolidated into and single document and mandatorily sent to participants.

Fees for 401(k) plans can vary depending on whether you’ve signed up for a passive or active account. Passive investments are tied to certain benchmarks, like the Standard & Poor’s 500 Index, and don’t require individual stock picks of investment managers. Active investments require portfolio managers to make trades in an attempt to outperform the market. Fees on passive investments typically hover around 0.5% of your total assets per quarter. Fees on active investments tend to be more than 1%. This may seem small, these costs can really add up.

A study earlier this year found that overall; the average median-income household with two income-earners pays nearly $155,000 over the course of their lifetime in 401(k) fees — shrinking their investment returns by about one-third. The new disclosure are not required to show you how much you might spend in fees overtime, for that you’ll have to use your noggin.

Federal disclosure requirements are not a cure for hidden fees. Some people may still find the disclosures less than intuitive. Still, it a good step in the direction of consumer education. As always you should take it upon yourself to learn more about your investments.

For help in assessing your investment strategies, give a call to our financial consultants at (303) 279.6414 or (800) 770.6414 between 9:00AM and 5:00PM Monday through Friday.

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