Exposing the Cost of 401(k) Accounts

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Do you know how much you pay in fees each year in your 401(k)? Did you even know there were fees charged in your 401(k)? This will all change in 2012. New regulations by the Department of Labor will require 401(k) administrators to disclose some of the fees you pay each year. I feel this is a good start to improve the transparency in the investment industry, specifically 401(k)s, which are quickly becoming many investors only source of retirement savings.

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With over 60% of American households participating in some type of employer-sponsored retirement plan, millions of investors will be affected by the new disclosure. I will assume none of you are part of the 30% of U.S. households that have no tax-advantaged savings.

Fees come in so many different forms and names, it would be difficult to name them all. Some fees are very explicit like administration fees or statement fees (Yes, I've seen fees as high as $2 per month to send paper statements). Other fees come directly off the investment returns, and as a result, may never be seen by the investor. The best example of this is the expense ratio every mutual fund charges.

According to this Department of Labor News Release , each of the 65 million workers with 401(k) plans will receive their first fee disclosure by May 31, 2012. It is hard to say what your first disclosure will look like with each 401(k) provider likely to use a unique format. Some advocates for the disclosure pushed for a simple total fee for the account, however this regulation falls short of just a dollar cost at the bottom of a statement. At the start you can expect to see some fees shown as both a percentage of assets invested as well as a dollar figure. It will also include fund performance information and benchmark comparisons. Keep in mind, not all the fees may be disclosed. So, there may be more you do not know about.

We have always believed fees are an investor's worst enemy. This improvement in disclosure will help others agree with our philosophy. It is hard to understand the damage fees can do when an investor never sees the fees being paid. Sticking with a disciplined approach in low-cost index investments would leave most investors ahead over time (See the annual Quantitative Analysis of Investor Behavior by DALBAR).

When you receive your first disclosure, please let us know. We would love to see some examples as well as answer any questions you may have. Hopefully, this will be just the first step by the Department of Labor and other government agencies to continue to improve the entire retirement savings landscape.

*Figure 1 in the ICI Research Perspective, Vol. 17, No.8

The intent of this article is to help expand your financial education. Although the information included may be relevant to your particular situation, it is not meant to be personalized advice. When it comes to investing, insurance and financial planning, it is important to speak to a professional and get advice that is tailored to your unique, individual situation. All investments involve risk including possible loss of principal. Investment objectives, risks and other information are contained in the Snider Investment Method Owner's Manual; read and consider them carefully before investing. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Retirement

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