Do you know how much of your 401(k) investment income gets paid to service providers? If you are like most employees with a 401(k) plan, you have no idea. Unfortunately, your employer and the companies that provide services under your plan know this, and some of them may be using it to charge excessive fees that could be costing you thousands of dollars and delaying your retirement.
401(k) Fees: An Overview
All employer-sponsored 401(k) plans involve fees that are charged for a variety of things. Some of these fees are legitimate (it takes time, skill, and money to manage a large investment plan), but recently, there have been several high-profile cases involving 401(k) providers who charge excessive fees.
For example, last November, Boeing agreed to a $57 million settlement in an employee class-action lawsuit alleging that the company had breached its fiduciary duty by failing to adequately control its 401(k) providers’ fees. This followed a U.S. Supreme Court decision in which the Court held that employers are legally required to monitor their employees’ retirement investments and fees.
401(k) fees fall into three primary categories. These are (i) plan administration fees, (ii) individual service fees, and (iii) investment fees. Investment fees may include:
- Sales charges, loans and commissions
- Management fees
- Investment advisory fees
- Account maintenance fees
- Administrative fees
In addition, certain types of investments, such as mutual funds and variable annuities, typically charge additional fees as well.
How Much Should I Be Paying in 401(k) Fees?
As a general rule, around 0.5 percent or less of employees’ 401(k) retirement income should be consumed by fees. If you are paying more than this, you should hire someone to examine your 401(k)’s fee structure to determine if you are paying any excess fees. To put the numbers in perspective, if you are paying even an extra one percent, over the course of a 35-year career with an average investment return, you could lose as much as 28 percent of the value of your 401(k).
How Do I Find Out About My 401(k) Fees?
To find out about the fees charged under your 401(k), you can review the documents provided through your plan. You should receive an annual report covering your plan’s fees and expenses, and your plan provider should release a summary plan description every 5 to 10 years. You should also be able to contact your plan administrator.
The U.S. Department of Labor also provides information on comparing plan fees. If you would like help understanding your 401(k) plan documents, you can contact one of our 401(k) lawyers for a free consultation.
Request a Free Consultation at Zamansky LLC
Zamansky LLC is a leading investment fraud law firm in New York City. Located in the heart of Wall Street, we help individual investors nationwide take action to protect their legal rights. 401(k) provider fees are facing increasing scrutiny. If you believe that you may be paying excessive 401(k) fees, we encourage you to contact us for a free, no-obligation consultation.