North County Times > It's Your Life

Ask About Your 401(k) Costs, Fees

by Candace Bahr

In the United States, the concern over 401(k) fees is steadily increasing.

Congress recently held hearings on the subject, hoping they can help employers make better decisions regarding 401(k) services. And lawsuits have been filed on behalf of 401(k) plan participants against more than a dozen major companies claiming excessive fees that diminish people's investment returns, lack of legally required oversight, and inadequate disclosure of information to plan participants.

The sad thing is, most companies aren't doing anything intentionally malicious with their 401(k) plans. The people running the plans are simply busy doing their "day jobs," and the majority are unaware that they're being poorly advised by financial sales representatives who themselves don't understand how to run a plan properly.

Ultimately, it is up to you to make your 401(k) plan the best it can be. Here are the questions to ask:

  • What is the "share class" of each mutual fund offered in the investment program, and what are the commissions and fees? Most companies won't know this, and many plan advisers will be resistant to providing the information. Share class is an easy indicator of excessive fees.

  • What is the "expense ratio" of each fund, and what is the "12b-1 fee" for each fund? These expenses are yet another layer of costs. The employer will most likely have a report from the adviser that breaks out this information along with fund performance.

  • What other fees are charged by the plan provider, such as "asset management" fees? This is a third layer of fees, and the employer should find them clearly spelled out in the original contract with the plan provider.

  • Is your 401(k) plan in a "group annuity"? If your plan provider is an insurance company, this could signal a different layer of fees.

Even if the people running your plan have difficulty answering your questions, you're doing them a favor by asking these questions.

First, it is critical for them to know the elements of the plan, since they are personally liable for plan failures, risking their own homes and personal investments.

Second, since most companies are NOT providing this information ---- or paying proper attention ---- the Internal Revenue Service and the Department of Labor (the two agencies overseeing retirement plans) are aggressively drafting new guidelines that will force companies to pay more attention and give plan participants more support.

So, you'll be helping the people running your plan get ahead of the curve.