Part 2: The Truth Behind 403(b) Retirement Plans

Be sure to start with our first post in this series.

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. 

While this report by the U.S. Department of Labor (DOL) found at least 17 different fees that can be charged to your qualified plan, the single most common hidden fee is the Revenue Sharing fee, which can create conflicting interests between employers (or unions) who sponsor the plans and the wealth companies who manage them.

Bloomberg TV’s investigation found troubling arrangements in plans offered by Wal-Mart (managed by Merrill Lynch), Ford Motor (managed by Fidelity), and Elcon (managed by John Hancock).


Conflicting Interests That Arise from Revenue Sharing

Jerry Daniels Hall, a school psychologist in Washington State, kept money in a 403(b) plan offered by her union, the National Education Association (NEA).  When her husband Dick lost his battle with cancer, she started an investment portfolio with the money from his life insurance policy.  Ten years later she realized that the returns from her NEA account were much lower than other investments in her portfolio.

In Jerry’s case the cause appeared to be conflicting interests between NEA, mutual funds managers, and 403(b) plan administrators.  Here’s why:  Jerry participates in a retirement plan offered by the NEA.  Through the plan she invests in mutual funds. To be one of the funds offered to Jerry, the mutual fund managers pay the plan administrators a revenue sharing fee.  The plan administrators then pay the unions an additional fee to endorse the plan with members.  All these hidden fees are then charged back to Jerry.  In a lawsuit filed by Jerry’s attorneys they say, “NEA fees could be characterized as truly absurd…with total fees as high as 12.17%.”  They contend that plans are often not acquired because of their merits but because of kickback payments that the unions receive.


Bloomberg TV Report – Part 2

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