Retirement Advice on How to Read Your 401(k) Fee Disclosure

Written by , September 20, 2012

Retirement Advice on How to Read Your 401k Fee DisclosureDo you know how much you pay in fees each year for your 401(k) account? Chances are good that you don’t. Even if you take a look at your last account statement, the information regarding fees might not be there. Actually, there’s a real possibility that when you considered the question you might have answered that you don’t pay any fees at all on your 401(k) account.

If you go to your HR Department or benefits manager and ask for this information, it’s quite possible that they won’t be able to give you an immediate answer. Instead, you’ll likely need to read the new 401(k) fee disclosure that you’ll start receiving in 2012.

Here is some retirement planning advice and tips on understanding the new 401(k) disclosure rules.

  • Overview of New Disclosure Rules. Under new rules that come into effect in 2012, 401(k) participants will receive annual and quarterly disclosures that will spell out how much in fees the participant is paying per $1,000 invested in their plans. As an added disclosure, your fees will also be stated as a percentage of assets in your account. This information will enable you to understand how much you’re paying for management, record keeping and administrative services.
  • Calculate For Your Account Value. Your 401(k) fee disclosure statement will disclose your fees in per $1,000 amount, but this number won’t give you the full picture of your fee burden. In order to understand how much these fees total for your account, multiply this per $1,000 amount by your account balance.
  • Know Your Context. Knowing your expense ratios is only the first step. Unless you know what’s a reasonable amount to be paying in fees, you won’t be able to know whether you should consider changing your approach to your retirement saving. According to a recent study by the Investment Company Institute, the median expense ratio for 401(k) accounts is 0.78%. But there was a very wide range of expense ratios – some plans had ratios as low as 0.28%, while others had ratios as high as nearly two percent.
  • Consider All Your Fees. Remember that the fee amounts disclosed to you in the new 401(k) disclosure are going to be in addition to any fees that you pay to any mutual fund companies whose shares you hold in your account. If your 401(k) plan administrator only provides a limited number of mutual fund options, these investment-specific fees may be greater than what you might expect to pay if you had a greater choice of options.
  • Consider Requesting a Change. If your fees are too high, you might consider inquiring with your employer about the possibility of switching to a new plan administrator. If a sufficient number of employees make such a request, you may be able to find a plan that can save everyone money.
  • Finally, if you don’t maximize your contributions each year and wouldn’t lose out on any employer matching funds, you might want to consider contributing to an IRA so that you can spend less on fees and have a greater degree of control over your investments.

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