Are hidden fees stealing your retirement?

This post comes from Angela Colley at partner site Money Talks News.

 

The U.S. Department of Labor says 72 million Americans are contributing to a 401k -- and their combined assets are close to $3 trillion.

 

If you're one of them, you probably think you don't pay fees to invest in your retirement account. But odds are you're wrong. Nearly all 401k plans include mutual funds, and virtually all mutual funds charge fees for everything from administration to management.

Why don't you see them? They're skimmed off the top before your results are tallied. But thanks to new rules, a light is about to shine on the fees you're paying for your 401k or 403b. Stacy Johnson explains the fees and the new rules in the video below. Then read on for more details. 

The Labor Department will soon require all financial institutions to begin reporting the fees you pay. And by November, you'll get to see those fees itemized on your statements.

This may seem insignificant. After all, who cares about a percent or two in fees? You should, because over your working life those fees can add up to the cost of a Ferrari.

The types of fees and how much they are vary by plan, but here are a few examples:

• Administrative expenses are any fees you're paying for record keeping, legal fees, and/or accounting. These fees are either based on a flat hourly rate or a percentage of the assets of the plan.
• Investment management fee is a percentage of your plan's assets to compensate the investment manager for making investment decisions.
• Other fees are specific to your plan, such as fees for taking out a plan loan.

How much are you paying? Your plan has to give you a fact sheet by August, and it will also itemize fee deductions on your quarterly statements by mid-November. That means you'll see exactly what you’re paying and for what.

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What you can do about it

Once you get an itemized list of fees, compare them with your 401k's benchmark performance (also listed on the fact sheet). Do you think they're too high for what you're getting? If you do, you have a few options:

• Talk to your employer. Some employers weren't aware of the fees, either. Your employer might be willing to negotiate a better deal, either with the current financial institution or another one.
• Take your business elsewhere. You can start investing with as little as $200 and open up an IRA. But don't abandon your work-related plan, especially if your company provides a match.
  
• Just wait. Many investment experts think that by shining a light on fees, the new rule will change the way financial institutions operate. When we start seeing what we're paying, and complaining about it, maybe those doing the charging will think about charging less.

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