In January 2011 CBS 60 Minutes aired a dramatic segment on 401-k fees.
At the start of the segment, a man with a coarse voice and visible bags under his eyes tells the audience “go back and track the growth in mutual funds with the growth in 401-k plans and it looks like a railroad track leading to the sky” (True, by the way)
Then Steve Kroft of 60 minutes responds “So the big winners have been the Mutual funds“?!
Clip from the 60 Minutes Video referenced :
While the story was sensationalized, the underlying premise was sound. Let’s face it: For years the 401-k plan, to a certain extent, has been something that resembles a national disgrace - rife with conflicts of interest. Revenue sharing – whereby the retirement plan industry compensates many different service providers without disclosure – would in other contexts simply be called bribes. And it’s been going on for years. Until now.
Justice Louis D. Brandeis once stated that “sunlight is said to be the best of disinfectants”. And that’s what the new fee disclosure rules intend to do; shine some light on the very dense fog of company retirement plans. One can only hope it helps.
So if you happen to be one of the 49.8 Million people who participate in these plans, what can you do about all of this?
When you receive a fee disclosure package around August 30th and when you open your 3rd quarter statement (which you should receive mid-November) you will for the first time notice more information about fees. Please don’t toss these documents aside!
I know that most people would rather collect those 20% off Bed Bath and Beyond coupons rather than assess how they can minimize 401-k fees (Because it’s less complicated)… but the latter will save you a lot more money!
The fee disclosure documents may appear in wordy and/or complex fashion, but please look them over carefully. The Major fees disclosed will include: Investment fees, administrative fees and transaction costs. Maybe you can lower your investment fees by switching some of your account into index funds? And don’t be shy about having a conversation with your HR department or 401-k decision maker to ensure that the Fees in the plan are “reasonable” and sufficient due diligence and comparison shopping has been done.
60 minutes may have announced it in dramatic fashion more than a year ago, but now it will be up to the investors in these plans to take the actions that will affect real change – possibly helping us to retire with a little better style of life.
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