401(k) investors: If your employer can’t sort out plan fees, how can you be expected to?

The 401(k) plan fees have been a ‘cash cow’ for the financial institutions at the expense of plan participants. This year this will all change as the plan participants will learn what fees they are paying and to whom. Service providers will need to eliminate the paypoints which do not add value to the plan. The problem is the fees will be disclosed in a mass of paper. Insurance company disclosure documents have been found to be over 40 pages long. These ‘hidden’ fees hurt investor performance and therefore their retirement benefits.

Investment percent gdp
Investment percent gdp (Photo credit: Wikipedia)

Half the plan sponsors did not know if they or their plan participants paid investment management fees, or they mistakenly believed those fees were waived. That was the case for 57 percent of small plan sponsors, defined as those with fewer than 50 participants. Even among large sponsors with at least 500 participants, 31 percent didn’t know. It’s disturbing because investment management fees account for the majority of overall 401(k) fees. They’re paid to managers who select stocks, bonds or other investments in funds that 401(k) assets are invested in. Plan sponsors may be unaware because management fees are typically deducted from a participant’s account, rather than being invoiced to the plan sponsor, the GAO said.

— Many sponsors reported they asked providers little about which fees were charged. For example, 70 percent hadn’t asked about whether the plan charged 12b-1 fees. Those charges can cover everything from compensation for brokers selling funds to advertising and promotions. Eighty-two percent didn’t ask about fees to reimburse plan record keepers for services including maintaining participants’ accounts and distributing disclosures sent to fund investors.

via therepublic.com

Plan participants lack clarity regarding the fees they pay, until now. The new disclosure regulations will help plan sponsors and plan participants build a successful retirement.

Please comment or call to discuss how your company sponsored retirement plan compares to others.

Posted via email from Curated 401k Plan Content

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Investment firms pulling out all stops against financial adviser rule change

WASHINGTON, DC - FEBRUARY 16:  U.S. Sen. Josep...
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It is well documented that 401(k) plan sold by insurance comapnies and stockbrokers tend to be the most expensive in the industry. These business models are designed to sell product to the plan participants once the plan is sold. Although not all insurance agents or stockbrokers are deceptive there is no assurance that the conflict of interests are in the best interest of the employee.

In a statement to The Hill, Phyllis Borzi, Labor’s assistant secretary for EBSA, said investigations by Labor, the Securities and Exchange Commission, the Government Accountability Officeand others show that conflicts of interest for financial advisers result in lower returns and higher fees for investors.“Conflicts of interest and a lack of accountability are widespread in the marketplace for retirement advisory services. An adviser’s compensation is often directly tied to the specific investment recommendations that he makes, and there is a real danger that the adviser’s recommendations will not be based solely on the customer’s interest, but instead will reflect the adviser’s own financial self-interest,” Borzi said.

“Simply put, we are seeking to protect the millions of employers and small-business owners, workers and IRA holders who rely on investment advice by working to address these conflicts. We think this effort has merit and we are committed to getting it right.”

The fact that both Democrats and Republicans are opposed to the fiduciary rule. Is this because the financial services industry is lobbying both sides of the aisle? Why?

Please comment or call to discuss.

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