Excessive 401(k) Fees and What You Can Do

401(k) plans can involve a long list of costs and fees, some of which are covered by the employer and some by the employee. Below is a quick sampling:

• recordkeeping fees
• annual audit fees
• back-end loads
• brokerage commissions
• contract administration fees
• distribution expenses
• expense ratios
• front-end loads
• installation fees
• investment transfer expenses
• loan fees
• participant education fees
• plan document filing costs
• termination fees
• trustee service costs
• wrap fees
• 12b-1 fees
• management fees
• mortality & administrative fees
• nondiscrimintation testing fees

These costs and extra fees can eat away at your retirement account and your hard-earned money. Currently, some 401(k) plans are costing participants as much as 3% to 4% per year. However, with some effort and diligence, you have the ability to drastically reduce these costs.

Reducing these costs just slightly can help increase your nest egg. If just 1% of annual cost is eliminated and you achieve a net return of 8% rather than 7%, an account will be worth 32% more in 30 years. In dollars, this would turn your $758,000 nest egg into a $1 million dollar retirement account.

In an effort to make fees more transparent to plan participants, amended provisions of ERISA Regulation 408(b)(2) must be implemented by July 16, 2011. This legislation will require investment managers and advisors to disclose all investment costs in a written itemized format. These new regulations will help you know the costs you are paying for your 401(k) plan.

This is a big step forward, but it doesn’t eliminate the personal responsibility of plan participants to demand information about their plan’s costs. You must take an active role in requiring your employer to choose low-cost retirement programs. If you find the costs of your employers’ 401(k) plan to be excessive, put pressure on the HR department to consider alternative plan providers.