It’s official. Everybody who has a 401(k) will now have access to the total amount of fees they’re paying each quarter and that’s great news . . . but . . . will the information make the impact that it should or will it be another in the long list of disclosure statements Americans receive but don’t read?
Gone are the days of the pension when employers managed a huge pot of money and guaranteed retirees a certain payout. These plans were replaced by 401(k) plans that put the decisions in to the hands of the employee. Americans live in a country where freedom is cherished so giving individual employees control of their retirement money seems like a good idea. But what if they don’t have the knowledge to manage their account effectively? That’s the problem and that problem has resulted in baby boomers not having enough for retirement.
A potentially bigger problem with 401(k) plans is the fees. Not only does each employee pay fees attached to each investment product in their portfolio, they also pay fees to manage the overall account and often those fees aren’t disclosed leaving employees unable to forecast their retirement savings.
The New 401(k) Statement Law
A new law makes it mandatory that employers have knowledge of and disclose the amount being paid to administer the 401(k) account. In the past, they didn’t have to disclose this information to employees but when their 401(k) statements arrive in August, there will be easy to read information detailing the amount of fees their paying.
But all of that information isn’t helpful if employees don’t take the time to read it. Fidelity started including this information earlier in 2012 and according to them, the volume of calls they receive is so low that most customers are likely not reading the information. Another study found that 70% of 401(k) holders didn’t know that they were paying fees.
What You Should Do
Remember, the more fees you pay, the more that eats in to your future retirement savings. It’s estimated that more than $150,000 may be lost over the life of the account due to overly high fees. It’s important that you read your statement and gain knowledge of the fees you’re paying. Investing professionals agree that paying more than 1.5% in total fees is probably too much and well below 1% is ideal.
If you’re not confident in your ability to manage your own retirement accounts, get help. Find a trusted, fee only financial adviser that can help you optimize the performance of your 401(k). You can’t predict what the stock market will do tomorrow but you can predict the fees you pay for investing services. Keep the fees as low as possible while still getting good performance.
When the fee structure appears on your statement, take the time to read it and become familiar with how investing fees work. Then, look for ways to reduce those fees by picking cheaper investment options or getting help from a financial adviser you trust. And if you’re not sure you should be investing at this point in your financial plan, be sure to consult a financial coach and let them be there with you to walk you through every step of the way.