Do you know the fees you are paying every year in your 401(k)plan sponsored by your employer? Most people who are enrolled in their employer’s 401(k) plan don’t know how much they’re paying, or how those fees are even paid. The reality is that your money that you have saved in your retirement plan is paying those fees and very often these fees are way too high. And believe it or not, those fees really add up to a big number over the years.
Employers that run 401(k) plans owe their plan participants a fiduciary duty to supervise and closely monitor the retirement plan, including the fees paid to outside service providers and advisors. We have found that many plan sponsors are doing nothing to prevent these outside service providers from charging excessive fees, costing employee participants many thousands of unnecessary dollars. And, because the fee structure is often buried in the fine print, employees often don’t know that they are losing so much money.
The most common fees in a 401(k) plan are advisor fees, administrative fees, and investment fees. If you are paying more than a quarter or a half a percent annually in fees, you may be paying too much.
Let me demonstrate how these fees really do add up to a big number. Let’s say you have a balance of $25,000 in your 401(k) and you have 35 years until retirement. You earn 7% return annually and you do not put any more money in. If plan expenses and fees are 0.5 percent a year, your balance will grow to $227,000 in those 35 years. If those fees total 1.5 percent, however, you would end up with just $163,000, 28 percent less. That’s a loss of $64,000!
To find out what you are paying in fees, you should first ask your plan administrator for a copy of the plan’s summary plan description. As a participant in the retirement plan, you are entitled to receive this document. This will tell you the fees and expenses of the plan, in addition to other information about the investments offered. If you have any concerns about the fees and expenses in your 401(k), we would be happy to do a no-cost evaluation of your plan and the expenses you are paying. Give us a call today.