We review a lot of 401(k) plans for clients of our MAXadvisor 401(k) Planner service. Some are good, offering a wide variety of high-quality mutual fund investment options. Most, alas, are not. And one of the main reasons why so many 401(k) plans are lousy, writes John Wasik at Bloomberg, is their cost:
Matt Hutcheson, an independent fiduciary consultant based in Tigard, Oregon, says workers are overcharged by as much as 3.5 percent annually. 'Just 1 percent in excess cost to participants represents a wealth transfer of $25 billion to others -- each and every year,' he said.
Some of the most egregious charges are often hidden in retirement-plan documents and involve revenue shared between fund managers and middlemen.
So-called pay-to-play fees also saddle workers with charges that are loaded into your fund expense ratios. For example, a fund company may pay for 'shelf space' or inclusion in a 401(k) plan, also called a platform, says Tim Wood of Deschutes Investment Advisors LLC in Portland, Oregon.
'The participant may be paying up to 0.90 percent annually for a fund,'' says Wood, 'but is not able to determine what fee may have been paid to the platform provider. It is possible that a better option could have been made available to the participant from the entire universe of funds rather than only those that will agree to revenue sharing with a platform provider."
Wasik suggest a 'cost sticker' be included in monthly 401(k) statements that would disclose in an easy-to-read format exactly how much the funds in your 401(k) plan are charging you:
Employers have a huge incentive to open up the black box of 401(k) expenses. At least 16 lawsuits are pending that allege employers and insurers that offered plans failed to disclose third-party fees.
The reason for enhanced disclosure and identifying who is running your plan is simple. The more you know about how much you are being overcharged, the more you can lobby for lower fees. It's called having consumer choice in the free market."
We review a lot of 401(k) plans for clients of our MAXadvisor 401(k) Planner service. Some are good, offering a wide variety of high-quality mutual fund investment options. Most, alas, are not. And one of the main reasons why so many 401(k) plans are lousy, writes John Wasik at Bloomberg, is their cost:
Matt Hutcheson, an independent fiduciary consultant based in Tigard, Oregon, says workers are overcharged by as much as 3.5 percent annually. 'Just 1 percent in excess cost to participants represents a wealth transfer of $25 billion to others -- each and every year,' he said.
Some of the most egregious charges are often hidden in retirement-plan documents and involve revenue shared between fund managers and middlemen.
So-called pay-to-play fees also saddle workers with charges that are loaded into your fund expense ratios. For example, a fund company may pay for 'shelf space' or inclusion in a 401(k) plan, also called a platform, says Tim Wood of Deschutes Investment Advisors LLC in Portland, Oregon.
'The participant may be paying up to 0.90 percent annually for a fund,'' says Wood, 'but is not able to determine what fee may have been paid to the platform provider. It is possible that a better option could have been made available to the participant from the entire universe of funds rather than only those that will agree to revenue sharing with a platform provider."
Wasik suggest a 'cost sticker' be included in monthly 401(k) statements that would disclose in an easy-to-read format exactly how much the funds in your 401(k) plan are charging you:
Employers have a huge incentive to open up the black box of 401(k) expenses. At least 16 lawsuits are pending that allege employers and insurers that offered plans failed to disclose third-party fees.
The reason for enhanced disclosure and identifying who is running your plan is simple. The more you know about how much you are being overcharged, the more you can lobby for lower fees. It's called having consumer choice in the free market."
Sounds good to us.
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