Part 1: The Truth Behind 401(k) Retirement Plans

What you don’t know about your 401(k) and 403(b) plan CAN hurt you.  Hidden fees can reduce your nest egg by 50% or more.

In a 401(k) or 403(b) plan, your account balance will determine the amount of retirement income you will receive from the plan.  While contributions to your account and gains on investments will increase your income, fees and expenses paid by your plan may substantially reduce what’s really available at retirement.

There are a lot of reasons why qualified plans are coming up short.  A survey done by AARP showed that 8 out of 10 respondents did not know the cost of their plans.  That’s because many of the fees – all legal – are buried in obscure documents.

One nationally know retirement plan expert who testified before Congress about hidden fees, “When we buy bread we know exactly how much it costs…however when it comes to 401k plans, the sticker cost is advertised at 50 cents yet the actual cost is closer to $3.”

This report by the U.S. Department of Labor (DOL) found at least 17 different fees that can be charged to your qualified plan, and you’d be lucky to find even 1 of them identified by name on your account statement.  To name a few:

  • Revenue Sharing Fees charged by
  • Wrap Fees charged by
  • Surrender Charges Fees charged by
  • Shelf Space Fees charged by
  • Finder Fees charged by
  • Soft Dollar Fees charged by
  • 12B-1 Fees charged by

 

The Eroding Impact of Hidden Fees 

Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.

 

Bloomberg TV Report – Part 1

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