Is Your 401(k) Ripping You Off?
From Scott Cendrowski at Fortune:
Thanks to a new rule issued by the Labor Department, later this summer investors will begin receiving reports that for the first time detail all the fees they are being charged by their 401(k) plan providers. Every investor must receive an initial report by Aug. 30. It’s a landmark moment that should go a long way toward maximizing the nest eggs of regular savers.
The disclosures will offer 401(k) investors, who collectively control more than $3 trillion, the chance to see what until now has been buried in “additional statements” or 200-page government filings. The simple fact is, many 401(k) plans are much too expensive. The average investor is charged 0.83% of assets annually. (In small plans it’s often much more, as high as 3%; in large plans, a little less.) Some plans tack on additional “wrap fees” of up to 1% of your assets. Then there are the mutual funds inside the 401(k)s. Many plans only offer funds that charge fees of 1.5% or more — far higher than the 0.77% median fee for stock funds. Consider this jarring figure: An ordinary American household with two working adults will cough up almost $155,000 in 401(k) fees over a lifetime, according to the think tank Demos. Says Edward Siedle, a former SEC lawyer who now runs a pension and 401(k) research firm: “401(k)s are leaking money like a sieve.”
My own experiences with 401Ks were bad even when the markets were good.
PS. And people had the audacity to tell me I should invest more? I didn’t fall for it a second time. People called me a fool then. Now those same people are as broke as I am.
PPS And they’re farther in debt.
I may have to ban you again.
Okay, I understand. It’s probably best for me. Thanks.
To avoid being banned, don’t post.
Let me explain the rules to you bozos:
1- Read the excerpted link.
2- Limit your comments to that link.
This ain’t Word Up and I will brook very little bullshit.
I been been teaching the fee thing in CPA classes for a few years.
Many are going to be amazed if they dig a little.
If what may be undisclosed fees reduce retirement plan account balances,
like revenue sharing arrangements between plans,
investment managers and record keepers,
and ERISA section 404(c) requires plan sponsors
to act solely for the benefit of participants,
could qualified plan assets appear to disproportionately benefit interested third parties?
Based on a hypothetical 0% return, if the costs of a $1,000,000 investment
are reduced by 1.5% per year for 30 years, could $563,080 more dollars accumulate?
If a $1,000,000 401k with a $2,000 annual administrative fee
may also have asset based fees of 3%, or $30,000, totaling $32,000 per year,
can relatively small administrative fees make some retirement plans look inexpensive
if what could be undisclosed asset based fees are not accounted for?
Could many retirement plan sponsors
not be aware of all the fees they are actually paying?
If a $1,000,000 retirement plan grows to $10,000,000,
and a 3% asset based fee increases from $30,000 to about $300,000 per year,
as the plan sponsor continues to pay a $2,000 annual administrative fee,
can some costs appear to remain relatively stable while others exponentially increase?
Can relatively smaller disclosed administration fees
be a symptom of what could be considered larger undisclosed asset based fees?
.
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“A survey by AARP last December [2010]
revealed that 71 percent of 401(k) accountholders did not believe they paid any fees.
About 23 percent knew they paid fees
and the remaining 6 percent didn’t know whether they did or not.”
David Pitt
Associated Press
.
.
Why would who not want to disclose the totality of fees and expenses
in qualified retirement plans?
.
.
“How participants might react to this information is hard to guess,
but I think many will be surprised by the types and quantities of fees they are paying.
When these investors find out that they are paying fees
they will probably develop some level of sensitivity to the fees,
seeking lower cost options or putting pressure on plan fiduciaries…”
Ryan Alfred
.
.
“Comfort the afflicted, and afflict the comfortable.”
Finley Peter Dunne
Thanks.
At the risk of being banned with my apologies in advance. I keep looking at one line repeatedly, “Consider this jarring figure: An ordinary American household with two working adults will cough up almost $155,000 in 401(k) fees over a lifetime,” and thinking the vast majority of people I know have never had nor will never have $155,000 in a 401(k) or any other savings plan. How can people pay more in fees than most will ever have? And what kind of monsters preside over such a system?
The point to take from the article is that no matter how much you have invested, the admins of the 401(k) and any underlying mutual funds are often taking too high a percentage. As to monsters, they’re simply greedy.
Agreed, it was just that I was so rattled by those figures in the line I quoted. Thank you for bringing the article to my attention.