How Are 401(k) Fees Calculated?
As with most investments, 401(k) accounts include fees paid to the broker-dealer in order to maintain and adjust your investments as market trends change. Fees you might expect to pay for maintaining a 401(k) include plan administration fees, individual service fees, and investment fees. The latter in particular may include the following fees:
- Account maintenance fees
- Administrative fees (i.e. recordkeeping)
- Fees for sales charges, loans, and commissions
- Investment advisory fees
- Management fees
Outside of the typical above 401(k) fees, some investments like mutual funds or, used in particular within certain demographics of society, variable annuities, may have additional investment fees.
What Should I Pay in 401(k) Fees?
Although many people might assume they pay no fees for their employer 401(k), this cannot be further from the truth. Generally, you should expect to pay between .25% and 1% of your retirement income towards fees. This amount does vary, so if you suspect foul play, it is important to first request a copy of your plan’s fee structure from the plan administrator to better understand it.
Each year, you should receive an annual report about your plan fees and expenses, as well as a summary plan description at least every five to 10 years. The Employee Benefits Security Administration (EBSA) under the Department of Labor (DOL) also has resources regarding 401(k) plan fee comparisons if you are investigating whether or not you are paying excessive 401(k) fees.
If your 401(k) fees are still unclear after taking these steps to discover what they are, you might decide to take the extra steps and hire an attorney or another expert to examine your fee structure.
How Do 401(k) Fees Impact My Investments?
While you might think that a small percentage of fees will not impact your investment in the long run, in reality, even a percentage point difference in fees charged can add up to a big difference.
As an example, you have 35 years until you retire and your 401(k) has $25,000 invested. If you don’t deposit anymore money into it and maintain a 7% return each year on that amount, your balance will be $227,000 in 35 years if your fees are only .5% a year.
However, one percentage point higher in fees—at 1.5%—with the same parameters would only see a $163,000 investment at the end of 35 years. This would mean your investment would be almost 30% lower because fees took out their chunk over time, depleting the value of the portfolio each year.
An unscrupulous plan manager or broker-dealer likely knows you do not understand your plan fees or adds more than necessary to maintain your portfolio without being transparent about doing so. In reality, this misleading management can put your hard-earned money into their pockets.
The most egregious part of this is that the business itself, and not the investor, may not be aware this is happening despite having a fiduciary duty to monitor its company-sponsored 401(k) plan, including the fees its managers are charging. This can impact not only the employees themselves, but the company as a whole if not taken care of as soon as discrepancies emerge.
According to The Employee Retirement Income Security Act of 1974 (ERISA), voluntarily established pensions and retirement plans must follow minimum standards organized by the DOL if the company doing so is privately held. This includes “fiduciary responsibilities for those who manage and control plan assets,” meaning a company hosting a retirement plan has a duty to its employees to be aware of fees. Circumstances such as uncovering excessive 401(k) fees might lead to the company that adopted the plan to be held as a liable party in a securities misconduct suit.
Contact a Securities Misconduct Attorney
Do not wait to have your 401(k) fees reviewed by a trusted securities attorney who knows what to look for when it comes to exorbitant investment fees. Contact Oakes & Fosher today to discuss your concerns.