By JLP | April 3, 2007
On March 14, the Wall Street Journal featured an article by Eleanor Laise titled What Is Your 401(k) Costing You?(free) Most people (myself included) have no idea how much their 401(k) plan provider is charging them to manage their 401(k). Why? Because many of the fees aren’t disclosed.
I realize that 401(k) plan administration is expensive. However, I don’t see why plan providers and administrators can’t provide details on plan costs. I found the excuses for the lack of disclosure laughable:
If participants can easily compare the costs, some in the industry argue, employees might plow all their money into cheap but low-return investment options like a money-market fund. Others say that if employees saw all plan expenses, they might not want to participate at all, which would be a “worst-case scenario,” says Pamela Hess, director of retirement research at Hewitt Associates.
Even if that were true, we’re probably talking about people who already put all their money in money market funds or don’t participate at all. What employees need is education along with full disclosure.
Fees Do Matter
Take a look at the graphic I put together illustrating the impact of fees on a 401(k) account:
As you can see, fees do matter. It’s amazing that a 2% fee can wipe away over 25% of a retirement plan balance.
Now it’s your turn to weigh in. Do you think plan providers and administrators should provide full disclosure on 401(k) plan fees?