Part V- 401k Hidden Fees: What You Don’t Know Will Cost You!
401k hidden fees have been at the forefront of 401k lawsuits. Many companies, especially smaller businesses, are shifting plan administrative expenses to plan participants, knowingly or unknowingly. These shifts of plan expenses come in the form of "hidden fees" that are routinely deducted from each participant’s retirement savings by some plan providers and mutual funds. This is the last in our series regarding the various shapes, sizes and names that 401k hidden fees can come in. Parts I through IV below.
Part I- Top 3 401k Hidden Fee Misconceptions
Part II- 401k Hidden Fees: 5 More Fees to Look Out For
Part III- 401k Hidden Fees: Top 5 Administration Fees
Part IV- 401k Hidden Fees: You Pay for Everything
Insurance companies have become the biggest culprits when it comes to hidden fees, packaging them in ways that make it next to impossible for even the savviest investor to unravel.
18. Surrender charges- These are fees an insurance company may charge when an employer terminates a contract (in other words, withdraws the plan’s investment) before the term of the contract expires or if you withdraw an amount from the contract. These fees normally decrease over time. The period for which the charge can remain in effect can run anywhere from 1 to 12 years. This is to discourage a short term investment by the investor, but the fact remains the main purpose is it makes money for the insurance companies. It is similar to an early withdrawal penalty on a bank certificate of deposit or to a back-end load or redemption fee charged by some mutual funds.
19. Mortality Risk or M & E charges- This fee pays for the insurance guarantee, commissions, selling, and administrative expenses of the contract. In general, these fees in a variable annuity will be charged as a percentage of the average value of the investment and will probably be quoted as “basis points”. Basically this is an asset-based fee which means it will increase as the size of the plan increases even though you receive no additional benefits. In a fixed annuity, these charges are usually incorporated in the insurance company’s determination of the periodic interest rate or the annuity payment amount during the distribution phase.
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.