Every 401(k) Plan Participant Pays Investment Fees

Many investors are oblivious to the fact that 401(k) plan fees exist. Fees such as plan administrator fees, individual service fees and investment fees are part of every retirement plan to help keep the plan running. Because the fees may not show up on your quarterly statement, many don’t know they are there.

A recent survey conducted by Smart401k asked its active members if they’re aware that every 401(k) plan participant pays investment fees. The results are shocking: only 28 percent of the 881 responders said they’re aware of the fees. The majority 72 percent of the responders said they’re unaware of fees.

Not all fees are created equal. Fees can affect the bottom line of your 401(k), so it’s important to understand how much you’re paying in fees to avoid excessive and unnecessary costs. However, don’t let 401(k) fees discourage you from building your nest egg.

Starting in 2012, the Department of Labor will make it easier to get information on the fees, requiring company-sponsored retirement plans to reveal all fee and expense information to plan participants. Employers will have to display the costs of each mutual fund and other investments in a clear way for employees to compare their available choices. Plan administrators will also be required to provide participants with the amount of plan-related fees and expenses deducted from their accounts.

Some fees will not be revealed under the new rule.

IRAs will not fall under the fee disclosure rule. However, just because IRA fees aren’t disclosed doesn’t mean those accounts are fee-free. If you do have an IRA, make sure you take some time to find out the types of fees you may be paying such as custodial fees, management fees and transaction fees.

Make sure you keep investing.

Now that you know every plan participant pays fees, you may be discouraged from contributing to your retirement plan or increasing your contribution amount. This would be a big mistake.

Remember, those fees have always been there, the only difference is that you are now aware of them.

Don’t let plan fees and expenses keep you from investing or increasing your contribution amount. Your 401(k) could be your biggest asset come retirement time. Take advantage of the new disclosure rule and understand the fees you are paying now so that you can optimize your retirement strategy and take control of your future. No matter what you do, make sure you keep investing in your retirement plan.

You have one shot at planning for retirement and 401(k) fees shouldn’t be the reasons that keep you from achieving your retirement goals. Make the most of the Department of Labor’s new guidelines and take control of your investment strategy.

About the Author

By , on Nov 9, 2011
Scott Holsopple
Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.

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Leave Your Comment (2 Comments)

  1. Doctor Stock says:

    As a Canadian, I’m not always up on the details of how the 401k plans work… so thanks for this insight.

  2. Paula says:

    I find it easy to check the expense ratio of a given fund, but hard to learn about any other fees. Hopefully this will help people understand more about the fees in their portfolio.

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