What Your 401(k) Really Costs You

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It looks difficult to determine your own costs for your 401k. http://www.401kfeesandexpenses.com/401k-costs.html I imagine that is why there will be changes forthcoming by the department of labor. Hopefully these changes will simplify the process.

Travis R of MD 9:56AM November 30, 2011

Problem: Employers (plan sponsors) fear making a mistake and being fined for a breach of fiduciary duty. So, they tend to trust the advice of recordkeepers, plan consultants, and investment advisers who have inherent conflicts of interest. Big mistake!
Solution: Instead of hiring service providers who charge more than they should and could care less about the true cost of your plan, it makes more sense to learn what a truly low cost 401(k) or 403(b) plan looks like and set it up yourself. Easy!
You may be thinking this: Okay, this makes sense, so what does a low cost plan look like so that I can set one up?
Well, it looks like this:
Its recordkeeping and administration costs not more than $30.00, per year, per eligible employee. It has a core mix of index funds that cost not more than 0.07 to 0.25%, per year. And it has low cost self-directed accounts for employees who have never picked a mix of managed mutual funds or packaged products such as target-date funds that beat a mix of index funds in performance, but they want to try it anyway. Dumb!
My point is this:
1. If your plan's recordkeeper and admininistrator charges more than $30.00, per year, per eligible employee, stop it. Hire a recordkeeper that charges less.
2. Most plan consultants have never set up a low cost plan because they never learned how. It's like this...if a plan sponsor (employer) does not know what a low cost plan looks like, he or she will most likely pay an expert to set up a plan that is expensive. Want proof? Congress held hearing and found out that most plans cost more than they should. Now you, too, know why YOUR plan is probably too expensive to keep. The good news is this. Today, you can set up a low cost plan FAST.
3. Not one investment adviser has ever picked a mix of managed mutual funds or packaged products such as asset-allocation, target-date, life-cycle, lifestyle or balanced funds that beat a core mix of index funds in performance--long term. Want proof? Ask your trusted adviser for his or her track record. By the way, DO NOT make the mistake of allowing the expert to cherry pick time frames and/or mutual funds that he or she did not own back then. They love pulling that trick on people, don't they?
Summary: Anyone can set up a truly low cost plan, fast. But most employers will never get around to it because of fear of making a mistake. And most employees won't hold their employer's feet to the fire and make him or her set up a truly low cost plan.
How about you? What will your 401(k) or 403(b) plan look like tomorrow?
Best wishes to your readers,
Frank R. Cirullo

Frank R. Cirullo of CA 5:26PM June 09, 2010

If this is true about 401K accounts, are 403 B accounts for educators affected the same way?

Debbie L. of TX 6:29PM June 03, 2010

When employees ask for full disclosure by 401k providers and their employers they can get the information, but because many don't really want to know or don't know how retirement plan work, they don't ask. Legislation currently in House and the Department of Labor (DOL) are working to help employees learn what they pay for the management, advise, trust accounting, and plan administration they get within retirement plans. The key is realizing there is no such thing as a free lunch and you, as a 401k plan participant, you have the responsibility to know what you are doing when you invest.

Kimberly D. Overman, CFP of FL 11:52PM June 01, 2010

While employeed and if your co. matches a % of your contribution you cannot get a better investment return for your money. That is true only if the fund company that is contracted by your co. that is managing your 401K is a reputable fund administrator - like Fidelity/ING/etc. where your invested $ are not loosing your primary investment. Over the last 2+ yrs many 401K plans have "tanked" lost 50, 60, and more % because of unnecesary fees (pocket money for the fund managers company), and poor foresight of the market trends. Most 401K plans will let you choose where your investment is directed.
But, if you are still employeed and your co. doesn't match investment $ then get rid of the 401K. But, unlike "Mr. Truth of PA" suggests don't put it all into gold / silver, maybe some, but the best you can do if you find yourself without a job or any income or retired and don't want to chance losing your $, there are many IRA funds available from, once again - reputable investment companies, that are out-front about what their fees are. IRAs are the way to go if you manage the investment or understand the investment choices and make the right choice for yourself. Fund managers and insurance/annuity/fund sales people are required to state all fund particulars, good and bad, but sometimes you have to ask "what's good and what's bad about this fund you are proposing/offering?" Full disclosure is required by most State Insurance administrations and if you are looking at variable fund investments these are overseen by the Securities and Exchange Commission (at this date that's not really saying very much-Bernie manipulated and intimidated the SEC reps).
Contrary to the first paragraph in this article it refers to the status of your money in a 401K as "tax-exempt", wrong!!! The money you invest into a 401K fund is "pre-taxed" that is, it comes out of your gross pay before taxes are levied on this money. When you take a distribution (withdrawal) then you have to pay the taxes on it. IRAs, Money Markets, and many other funds are available to "roll your 401K" into and not cost you anything, if they try, you have the right to report them to the State Insurance Admin and or the SEC, if appropriate. But if you are retired I found rolling my 401K $ into one of these other funds is beneficial to protecting your money and possibly make a little off the way it's being invested - I made over 10% last yr. The best thing to do is call and talk to the fund manager and ask questions about fees and investment trends. But be sensible and don't have your fund invest in only one area, like gold and silver. You need to be sure that it's diversified - once again talk to the fund management for advice.

Hary Krishna Goldberg - ha,ha of CA 12:37PM June 01, 2010

You can access your 401K funds at any time, and only be liable for the tax, providing you continue to make withdrawls until you are 59.

Jim of CA 12:01PM June 01, 2010

Do what I do... AVOID 401k's entirely. They are a scam. You cannot touch your OWN money until you are 59 1/2... how ridiculous is that?
401k's are just another way for Wall Street to siphon fees/expenses from the stupid naive sheeple.
Save your money, then buy gold and silver with it. It's the best way to beat these criminals.

Mr Truth of PA 7:36AM June 01, 2010

The article fails to mention that the Employee Benefits Security Administration, part of the U.S. Dept. of Labor, will issue regulations probably within the month and again in the Fall on the very issues included in Rep. Miller's legislation. The legislation is unnecessary and, if passed, will confuse the matter and require significant expense to plan participants.
If we don't want defined contribution plans, like 401(k) plans, to go the way of defined benefit plans, like traditional pension plans, we better soon realize that regulations have to be effective. It is not the least bit effective to be proposing legislation weeks before regulations are due on the very same issue which, by the way, have been in the works for years.
These are complicated matters that require millions and millions of dollars to understand and implement. Congress needs to focus on the many matters that require its attention. This is clearly not one of them.

David Kolhoff of IN 2:15PM May 28, 2010