EDITOR'S NOTE: This article was originally published in the June 2009 issue of Kiplinger's Retirement Report. To subscribe, click here.
You may be diligent about studying your 401(k) statement when it arrives in the mail. You likely see the balance for each investment, your contributions and prices of shares. But you probably can't tell just how much your plan is costing you.
That could change. Congress is considering legislation that would require plan administrators to disclose detailed fee information to both employers and participants. "Typical 401(k) plan members don't know how much they're paying in fees, and they would probably be surprised," says Sandy Mackenzie, strategic policy adviser with the AARP Public Policy Institute. Lawmakers are expected to approve some form of fee disclosure, but plan administrators, sponsors and mutual fund companies are pushing for changes to the current bill.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The 401(k) Fair Disclosure for Retirement Security Act in the House does not require annuity sellers, mutual fund companies and plan administrators to lower fees. Instead, supporters argue that employees have a right to know what they're paying. Workers could then compare the costs of the plan's investment offerings; if any cost too much, they could ask employers for cheaper options.
Investment-management fees are the largest cost. They're charged by companies managing mutual funds, annuities and other products. A company subtracts fees from a participant's gains and adds them to losses before it calculates the annual return. With a mutual fund, these fees are listed in a prospectus as the "expense ratio," but you need to multiply the ratio by the balance of each fund you own to figure out your own costs. Annuity products' fees are more obscure.
In addition, plan administrators charge fees to operate the plan, such as processing fund selections and preparing account statements. These fees are charged as a percentage of a participant's assets or as a flat fee, but they are not listed in individual statements.
The legislation would require 401(k) providers to give employers a breakdown of administrative, investment-management and other fees. The bill would also require sponsors to offer at least one index fund, which typically has lower fees than a managed fund. If the legislation passes, workers' statements would show, in dollar amounts, the fees that have been subtracted from their accounts.
Many employers are not even aware of each fee they're charged. Some providers package their fees. The bill would require providers to issue a fee breakdown. David Wray, president of the Profit Sharing/401(k) Council of America, which represents employers, says disclosure would give sponsors "the ability to comparison shop more effectively" for providers.
Rick Meigs, president of 401(k)HelpCenter.com, says fee disclosure will be "a huge benefit" to smaller employers. Large employers can demand fee information and better deals. But small firms typically don't see the fee breakdown and thus can't compare provider costs.
Groups representing providers, employers and mutual fund companies are advocating changes. The 401(k) providers argue that calculating an exact fee total for each employee would be impossible. "You have contributions coming into an account, you have market fluctuation, you have participants coming in and out," says Larry Goldbrum, executive vice-president for the SPARK Institute, a trade group. He says providing expense ratios rather than dollar amounts for each person's investments is enough.
Mutual fund companies say they already disclose expense ratios, and support requiring insurance companies and other product providers to disclose fees. But they're concerned that employees will choose investments based solely on their fees. "Fees have to be disclosed along with risks, past performance and investment objectives," says Michael Hadley, an associate counsel at the Investment Company Institute.
Meanwhile, says Wray, "Plan sponsors are very worried about being sued." Because employers have a fiduciary duty to avoid high fees, they fear that workers will retaliate if they're dissatisfied with plan costs. Employers are pushing for a measure that would help insulate them from lawsuits.
For more authoritative guidance on retirement investing, slashing taxes and getting the best health care, click here for a FREE sample issue of Kiplinger's Retirement Report.
-
My First $1 Million: Self-Employed Trader, 50, San FranciscoEver wonder how someone who's made a million dollars or more did it? Kiplinger's My First $1 Million series uncovers the answers.
-
Think You Know How to Be Happy in Retirement? These 9 Stats May Surprise YouWhen it comes to your retirement happiness, don't believe everything you hear. We've turned to solid research for the facts on finding your bliss in retirement.
-
If You're Retired or Soon to Be, Don't Miss These Tax BreaksThe OBBB offers some tax advantages that are particularly beneficial for retirees and near-retirees. But they're available for only a limited time.
-
457 Plan Contribution Limits for 2026Retirement plans There are higher 457 plan contribution limits in 2026. That's good news for state and local government employees.
-
Medicare Basics: 12 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2026SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $70,000 in 2025, and up to $72,000 in 2026.
-
Roth IRA Contribution Limits for 2026Roth IRAs Roth IRAs allow you to save for retirement with after-tax dollars while you're working, and then withdraw those contributions and earnings tax-free when you retire. Here's a look at 2026 limits and income-based phaseouts.
-
SIMPLE IRA Contribution Limits for 2026simple IRA For 2026, the SIMPLE IRA contribution limit rises to $17,000, with a $4,000 catch-up for those 50 and over, totaling $21,000.
-
457 Contribution Limits for 2024retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
-
Roth 401(k) Contribution Limits for 2026retirement plans The Roth 401(k) contribution limit for 2026 has increased, and workers who are 50 and older can save even more.
