“Retirement plan providers have been overcharging investors for decades – creating a huge drag on returns. But new rules on fee disclosure should help drive down costs,” writes Scott Cendrowsku in a recent Fortune Magazine article, Is Your 401k Ripping You Off.
If you have ever wondered how much you are paying for your 401k Plan, now you will be able to find out. The new 401k rules, which will take effect on August 30, 2012, require your employer to disclose all 401k fees, including plan administration, investment management and mutual fund marketing fees. In some plans the total can top 3% of your account value annually! In the past these fees have been buried in small print documents. Now all 401k participants will receive a detailed statement disclosing all charges.
While an individual participant may not be able to impact directly the layers of 401k fees, the new transparency is expected to cause a shift in the marketplace, forcing employers to select lower cost providers for their employee retirement plans. Even in advance of the August 30 deadline, the new rule is having an impact. Many of the high-cost retirement plan providers have already begun reducing their fees, while the traditionally low-cost providers like Vanguard and Schwab have begun to acquire more business.
What the new 401k rules will not change
Investors and fiduciaries need to continue to focus on financial product fees. With the overwhelming volume of marketing and sales hype produced by the investment and financial services industry, it is easy to get distracted by investment strategy and performance drivel – and to lose sight of fees – and perhaps that is the point. In fact, fees are the most controllable factor in the retirement planning equation.
In a recent Vanguard Blog, “Fees: out of sight; out of mind,” Steve Utkus writes, “ the investment marketplace is awash with information on past performance and on competing strategies, while fees are simply one or two data points. By the simple measure of the weight of the data available, fees are lost in the sea of complex investment information.”
Now you have one more terrific source of fee information courtesy of your employer retirement plan – use it to do your homework and boost your investment returns without cutting your spending or taking more investment risk.
If you are looking for expert advice and help with your personal investment strategy, Tamarind Financial Planning is here to help you, with proven individual financial planning strategies and personal investment management advice.