Part IV: 401k Hidden Fees - You Pay for Everything!
It’s no secret that creating awareness of what’s been happening in the 401k market is imperative to plan participants preserving their retirement income. The US Labor Department is currently doing 401k audits of all plan sizes because of a trend that may violate current pension laws. Because of lax reporting requirements, no one really knows how much money changes hands behind the scenes, but it is estimated that excessive fees may be as much as $1.5 billion per year, and growing. As our series continues, here are 4 more fees that may be chomping away at your hard-earned savings.
14. Installation fees-Some plans may charge you what they consider an initial set-up fee or installation fee. This is the cost of getting the ball rolling and actually implementing the 401k plan. It can also be charged if you are adding a new service. If you already have a plan in place, this may be in the form of a conversion fee.
15. Enrollment expenses-This is the costs associated with providing materials to educate employees about the plan and enrolling employees in the plan. This may be part of, or included in the education programs.
16. Loan fees-These can include loan maintenance/repay tracking fees, loan origination fees, and loan processing fees. Allowing loans within a 401k plan is allowed by law, but an employer is not required to do so. Many small businesses just can't afford the high cost of adding this feature to their plan.
17. Termination fees- There can be product termination charges as well as contract termination charges, not to mention a service provider termination charge. Contract termination charges occur to the plan for “surrendering” or “terminating” its insurance/annuity contract prior to the end of a stated time period. The charge typically decreases over time. Product termination charges are investment-product charges associated with terminating one or all of a service provider’s investment products. Service provider termination charges are plan administrative costs associated with terminating a relationship with a service provider, with the permanent termination of a plan, or with the termination of specific plan services. The key is to read the fine print and make sure you are aware of what the cost of implementing change may be.
In the 401k arena, expense fee disclosure, whether to plan participants or plan sponsors, has been notoriously confusing and unclear. The impact of these confusing hidden fees on plan participants' retirement accounts can be very significant over time. What might appear to be a small difference in deducted investment fees can result in substantial differences in eventual retirement benefits.
About Charles Massimo
Recognized as industry expert and guest speaker at national industry conferences, Charles Massimo is a published author and media subject expert on topics ranging from wealth/asset management to investment and financial planning for high net worth families.