Now that you know how fees and costs can affect your investment returns, you have the tools to make solid investment choices. For most of you, the majority of your investing will come from your workplace retirement account – your 401k or 403b. (Which one you have depends on the company you work for – for profit or a non-profit.) By taking a hard look at these accounts, you may find out that you pay more than you ever realized.
I didn’t realize my 401k was so expensive
For the past couple of months, I’ve served on my company’s 401k committee. Our task was to find a new provider for our 401k services. The owner of the firm organized a committee in the hopes of lowering the extraordinary fee average of 2.25% per account.
The interview experience opened my eyes to all sorts of fees that were baked into our retirement plan – advisor fees, administrative fees, record keeping fees, etc. These costs were on top of the investments’ expense ratios. For six years, I paid these fees blindly not realizing how they affected my returns.
After researching many companies and trying to figure out what company would benefit the firm and employees the most, we went with a provider that will likely bring our average total expense down to .80% per account. That saves each account holder 1.45% a year. As we learned yesterday, that will add up to a lot of money over the life of the retirement accounts.
What does this mean for you?
Like I’ve said all week: know your costs. Thanks to the Department of Labor, 401k plan providers must submit an annual disclosure to employees that provides, among other things, the fees each participant pays.
If the disclosure isn’t clear, your organization should have someone you can ask for guidance: a retirement plan liaison. Make sure to use that resource. That resource should also have the ability to get you another copy if you “accidentally” threw it away without reading it. (I’m looking at you Ben.)
Look at your total cost
You may not have the ability to curb the administrative costs. But making your colleagues aware of high fees could affect positive change in your company’s retirement plan. And remember you have total control over the cost you pay for the funds you invest in. So look for low-cost options. If you don’t have any, you should inquire how to get them.