401K: Focus on Fees

Subtransfer agent fees, early redemption fees, custodial fees, wrap fees, investment adviser fees, 12b-1 fees, brokerage commissions, administrative fees, revenue sharing fees and fees for services… The list is so convoluted and endless, the mutual fund firms can’t even create diagrams depicting the fees that can be readily understood. If the industry itself can not even determine how they are fleecing the plan participants then how are the corporate sponsors and employees ever expected to figure it out.

Fortunately the Department of Labor is stepping up to the table with demands that the fees are properly disclosed on the ERISA-required form that every plan must file annually with the federal government. The changes are expected to be put in place in January 2009.

Hopefully these changes will help end the 401K plan practice of finding every possible angle to stick it to investors. A recent HingeFire post (see What is the cost to beat the market?) outlined how mutual funds have found new inventive ways to pick the pockets of mutual fund investors. Fees can make a significant difference in the amount of funds available for an employees’ retirement and it is critical that 401K plans are more transparent with all the expenses charged to plan participants.

Bankrate asks “Why's Your 401(k) Plan Heading South?” -- the answer is Fees.