As if things weren’t hard enough, this headline caught my eye the other day.
As 401K Assets Fall, Investors Could Pay Higher Fees.
Here’s some background: As part of the CARES act, 401(k) participants who are pre 59 ½ can take distributions from their 401(k) accounts without a penalty.
It’s expected that many Americans will need access to their retirement funds to pay bills. A necessary tweak of current law given these unusual times.
I also saw this headline a few days ago
Why 401 (K) fees are a mystery?
So, you guessed it. Today’s topic is 401(k) fees.
Does your 401(k) charge fees? Do you know what they are?
If you don’t know you’re not alone. According to the USA Today (Feb 2018) 37% of Americans believe their 401(k) has no fees while another 36% either don’t know their fees or where to find them.
Most every 401(k) plan charges an administrative fee for record keeping. This fee can be larger for a smaller company / plan. Big companies have the economies of scale working for them.
You may also pay an investment fee.
Investment fees are often charged by the funds you choose and are listed as “expense ratios” in your plan document. These fees can exceed 1% of assets.
It’s hard to get this information but it’s not supposed to be.
Ten years ago, the Labor Department enacted new requirements that the industry generally resisted: one making record keepers responsible for communicating fees to plan sponsors, and the other was tasking plan sponsors to give participants information about what they pay.
In practice, however, these requirements are weak, and they cater to the industry.
Which brings us to why you might see an uptick in fees moving forward.
In short, because your plan’s assets and contributions may shrink – even if you keep contributing the same amount – you may be negatively affected.
Participants in plans often pay tiered, asset-based record keeping fees and some will inevitably go below thresholds that previously got them discounts.
Workers, especially those who are struggling financially and not eligible for a company match, may be less likely to contribute to their plans – which may reduce the base even more.
Those left in the plan will have to pick up the slack, further eroding returns.
So, yes 401(k) plans can be costly and not particularly transparent about fees.
So, what can you do? You may be able to roll your money into an IRA. This is known as an IRA “rollover” and, if done correctly, is a non-taxable event.