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Friday, July 27, 2012

401(k) Fee Disclosures

The Department of Labor rules requiring 401(k) fee disclosures finally become available on the fall 401(k) statements.  Participants will see fees for the first time for administrative expenses as well as for investment management.

Smaller plans with less participants tend to take a bigger chunk out of the bottom line.  These plans, of course, tend to have the least sophisticated administrators.  In fairness, it should be noted that the larger plans do enjoy economies of scale; so their costs on a percentage basis should be somewhat less.  CNNMoney reports the following figures based on BrightScope data:

Total Assets                  average # of participants              Fees
> $1 billion                             53,650                                     0.36 %
$100 mln. - $1 bln.                       6,324                                     0.53 %  
$10 mln. - $100 mln.                       858                                      0.85 %
< $10 mln.                                    42                                       1.40%  
 Source: p.16, Money, August 2012

FYI:  A fee of 0.85 compounds to 13.5% over 15 years.  Thus, rolling over $10,000, say, to a 401(k) with these expenses could take out a good chunk of the nest egg over time.

401(k) participants will want to use this information to determine how to allocate their retirement contributions and make fund rollover decisions.  Generally, they will want to take advantage of any company match.  After that it may make sense to fund an IRA and use low-cost, diversified funds.  One outcome will likely be a general lowering of expenses as competition kicks in.

IMHO, it is a shame the government has to pass a law requiring this information.  Administrators should have insisted on it up front.  Once a few big providers got the message, it would become standard practice.          


  1. Many folks will be surprised at the fees they pay for management, but they should have been paying attention to these figures before making the decision to invest.

  2. I agree. Unfortunately people don't understand the difference over a long period of time between a fee of .65% and a fees of 1.2%. There are decimals and percentages combined in a single number! Actually there is a debate over whether the disclosure will make much of a difference.