401(k) fees

New rules by the Department of Labor took effect Sunday July 1 that require your employer to fully disclose all of the fees you pay in your401(k) retirement account.  These disclosures will be sent to you by the end of August, then annually thereafter.  This rule has been around for several years, but has been delayed multiple times because the 401(k) providers lobbied the DOL for more time because they could not decipher all the fees that you had to pay.  You read this correctly – the people charging the fees were having trouble figuring out just how much they were charging you.

Why is the disclosure important? Because the expenses you pay directly reduce the amount of your investment portfolio – up to 30% in some cases.  The expectation is that by requiring all providers to disclose these fees to the employees, employees will demand (and employers will) reduce the costs of the 401(k) plan by negotiating better rates or move to a lower cost provider.

For employees, reading disclosure is the first step in the process  The real questions are:

1. Will you be able to understand the disclose? It’s nice to see that the record keeping fee for your plan is 0.05% per year, while your spouses plan charges 0.70% per year. However, what does this mean? Are you paying for services you don’t use today, but can be?

2.  Will you know if you are in a high cost 401(k) plan?  If the disclosure shows a total cost of 0.75%, is that bad or good?

3.  If you determine that you are in a high cost plan, what are your other options for saving for retireent?  Should you still fully fund the 401(k) or use an IRA? Should you not use the 401(k) plan and give up the match because the costs are too high? Does it make sense to over-fund one spouse’s 401(k) at the expense of the other spouse? Can you lower the fees by using different investment options?

If you need help understanding the statement, putting the numbers in context for your situation and understanding your options, I recommend talking with a independent , Fee-Only financial advisor who is looking out for your best interest, not that of the plan advisor.  You will need to pay for this assistance, but depending on the account balance and the fees you are paying, you may be able to save more money in 1 year than the cost of the advice.