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Losing track of 401(k) plan fees

Have you lost your 401(k) plan? To me, that question is akin to, "Have you lost your mind?"

I can't fathom losing track of something as vitally important as a retirement account, except in really unusual situations. For instance, a CIA operative suffers amnesia after getting knocked on the head by an enemy agent. He doesn't know his own name or occupation, and doesn't understand why sinister guys in a black SUV are tailing him. This type of individual, understandably, could be excused for losing sight of his 401(k) plan from a former employer.

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But the problem of 401(k)-plan oblivion is a lot more widespread than you might think. And now there's a national database where former plan participants can search for and lay claim to 401(k) plans they'd forgotten all about. Likewise, plan sponsors are using this database to locate employees that they had been unable to find using conventional methods. The national registry, located at unclaimedretirementbenefits.com, is a lost-and-found repository of information for both plan participants and providers.

Losing track of 401(k) plan fees
I'd love to see this easy give-and-take information exchange applied to 401(k) plan expenses, since losing track of these fees is a widespread phenomenon.

Have you ever tried to figure out how much you're paying for the privilege of contributing to your employer's retirement plan?

Chances are that you have no clue. The scary thing is, even plan sponsors -- those who are entrusted with the fiduciary responsibility of acting in the best interests of plan participants -- often do not completely understand how much money is changing hands among all of the parties involved in a retirement plan.

It's a disclosure problem. In a recent commentary, Rick Meigs, president of www.401khelpcenter.com, cites this as the No. 1 trend to watch for in 2005: "a continued focus on revenue sharing and the issue of fees being 'hidden' from the plan sponsor." He expects to see some attempt by the Securities and Exchange Commission and the Department of Labor to move toward more disclosure, "but don't expect them to make any radical changes like the elimination of 12b-1 fees," he wrote earlier this year.

On its Web site, the Labor Department offers the publication, "A look at 401(k) plan fees for employees." If you're complacent about this issue, read this scenario presented by the DOL on why fees are an important consideration to 401(k) plan investors:

"Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent."

That's a huge difference -- the difference between livin' lean and livin' large during your retirement. Are you getting riled yet?

A slew of 401(k) plan fees
My concern is that plan fees could easily surpass 1.5 percent, since this is commonly what investors pay for fund expenses alone.

Annual expense ratios are a big part of 401(k) fees, and they're expressed as a percentage of assets. They pay for investment management services, but because they're deducted from fund returns, you don't readily see their potentially erosive effects.

-- Posted: May 11, 2005




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