5 ways your 401k leaks money

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48Comments

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Jul 17, 2012 3:24PM

As a 401(k) Plan advisor I find it interesting that participants think that those who provide services to the Plan should work for free. The truth is no one works for free, if they do it is called service or volunteerism. With that being said there is a big problem with how much money participants are charged. With the new regulations that have come out, 408(b)(2) and 404(a)(5), Plan Fiduciaries and Trustees to the Plan should know how much the Plan is being charged as well as the participants should know how much comes out of their account each quarter. The fact of the matter is, is that the big insurance companies and financial institutions (Nationwide, John Hancock, Principal, Fidelity) have all devised ways to hide fees from participants. On August when participants receive their statement look to see how much money is coming out of your account, if you do not see anything ask your HR director for the full disclosure of the fees being charged to the Plan. Even though there may not be fees on your statement I can guarantee that there are fees coming out somewhere, unless being paid by the Plan Sponsor.

If you want to benchmark your returns for the last quarter ending 6/30 google Cannon Capital Management and click on Newsletters and read the first article on the page. At the bottom of the article it will have risk based portfolio returns compared to the Morningstar benchmark. See how yours compared. If you want a change in your 401(k) talk to the people that can make that happen at the company, your HR department can get the ball rolling.

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guitarztx

Jul 17, 2012 2:51PM

I used to think the match was a great deal--but now with job turn over being what it is it seems like a cruel incentive really. I would consider just opting out of the 401k and going straight to the IRA. That way you can control your investment decisions 100%...do what you want to do. Get tapped into a great broker with good investment software, in short take charge. Change jobs? Just stick with the IRA and your strategy never is affected. Same if you work of a 1099 for awhile, just keep managing and contributing. I personally have gotten much deeper in doing research and trade a lot more with options being a big part of my strategy. It has paid off. I have beaten the S&P, which most funds don't do. It's not easy but there are good strategies and the software tools are awesome these days.

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The Wizard of Faux

Jul 17, 2012 2:13PM

It's a 401k, enough said.

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RLG09

Jul 17, 2012 1:11PM

It's funny you should mentions the fees. The only reason 401(k)'s are offered is to provide a revenue stream to the financial services industry. It was never intended to be an effective way to prepair for retirement. Unfortunately, it's the only employer sponsored plan available to the majority of Americans. The financial services industry should be embarassed that they have never devised a more effective product. It is a pathetic and tragic situation.

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CobraTK

Jul 16, 2012 11:36AM

Wow, what a confusing and misleading article! First you tout the value of company matches which shouldn't be passed up and then you state that if fees are too high then consider retirement investing elsewhere. So go buy an IRA with no match and returns of next to nothing is basically what you are saying. It must be stated that most funds have fees of some sort depending on the type of fund and how much it is actively managed. For example an index fund may only have expenses of 17 basis points while a small cap fund may have expenses in excess of 100 basis points.

It also should be known that most corporate 401k funds are able to purchase institutional shares which carry lower fees than other types of shares. The bottom line is that providers must be paid for their services as well as fund managers. You wouldn't suggest that investment managers work for free, so it is up to the 401k fiduciary to ascertain whether fees are reasonable and fair. Disclosure of fees is being done now, so all participants will be informed of all fees and can make appropriate investment selections.

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Iron Mike 76

Jul 16, 2012 12:08AM

"many people have had to tap their 401k's to make ends meet." Wrong. Nobody ever has to do this. How many Americans are dying of starvation? The biggest health issue among the poor is obesity.

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