Tuesday, April 22, 2008

My 401(k) fees doubled - have yours?

It may seem like a small amount to charge -- $2 a month to "manage" my retirement account. 
It is nearly double, though, what I paid at the beginning of the year. My company quietly raised the fees about a month ago, or rather, allowed the financial services company that oversees our 401(k) program to boost them. 

The only reason I noticed is because I painstakingly enter each investment transaction in my Quicken program.

The costs add up over time, especially if you consider the eight percent annual rate of return I could have earned had I been allowed to keep that extra dollar a month. 

At a minimum, the added fees likely mean I will have almost $1,000 less when I retire. The loss could be much greater over time, though, since the standard fees being assessed as fractions of shares I hold, not dollar amounts. As the market recovers, the cash value of these deductions will increase. Many financial companies also increase the share charge as the balance of your account grows.

I have asked for detailed cost information from the firm that manages my company's program. I'll let you know when I hear back from them.

If you need a reason to be concerned, or at least well informed about what is being deducted from 401(k) account, read this Los Angeles Times series published in 2006. 

Some charges are not being disclosed at all.

The paper noted that people like John Fuchs, an IT manager, are paying about $500 a year in hidden management fees. For him, the charges mean more than $300,000 in lost savings by the time he retires. 

A bill is pending in Congress to require 401(k) participants at least be told what they are being docked, but according to a Times editorial today, "The measure has drawn still opposition from securities firms, which have complained that employers and workers would be confused and even deterred by a detailed disclosure of the various categories of fees."

The editorial also goes on to argue, "Arrangements between employers and retirement plan providers that hide fees from those who pay them prevent market forces from holding down those charges."

I am glad I never transferred my retirement savings from other employers into the program where I currently work. I instead chose to move it into a rollover IRA at a brokerage company. It is at least required by law to tell me what is being taken from my account.

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