Stern Advice: Companies shake up 401(k)plans, cut fees

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Plan sponsors are recognizing the need to understand the fees their plan is paying. Employees will begin to ask questions on fees when they learn what they are paying.

Employees may not see evidence of these changes until the spring of 2012. But here are some they may already be seeing, and what to do about them.– Controlling costs is paramount. Not every employee has access yet to those clear fee reports, but there are some ways to see what you are spending. Workers whose plans are covered by Brightscope can see that information on the Website. Workers can ask their human resources department for a bottom-line figure.

As much as 90 percent of 401(k) costs are in the investment management fees, reports David Huntley of HR Investment Consultants. That means the funds you choose have the biggest impact on what you pay. Typically, index funds charge less than actively managed funds. Even cheaper options could include institutional classes of funds or separate accounts that look like mutual fund portfolios but are created especially for retirement accounts.

— It’s not all about the cheapest. It’s good to go with the lowest-cost option that fits your objective. That means you shouldn’t keep all of your retirement account invested in an uber-cheap money market fund if you need stocks for the long term. But, once you’re choosing among similar stock funds, you’ll probably improve your retirement income by choosing the lower-cost one.

Fees matter and starting in 2012 plans will be required to disclose who gets paid what. A low cost globally diversified portfolio will allow participants to reach their financial goals with less stress. Studies suggest this will result in increased productivity.

Please comment or call to discuss how you can determine the fees your plan pays ahead of the regulations.

  • Regulations and Costs Shaping Future of 401k Plans According to FRC Study (
  • Ameriprise workers sue over company’s own 401(k) funds (
  • Lifting the Lid on 401(k) Fees (
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