High fees in retirement plans and investments
Until recently, participants in employer-sponsored plans, such as 401(k)s, had no way of knowing exactly how much their plan cost, and the vast majority had no idea that their plans had any costs at all. From the expenses charged by mutual funds to record-keeping costs, fees add up. That translates to fewer dollars available for compounding and a lot less money at retirement.
Plan fees can run as high as 4 percent, but "an acceptable level is around 1.5 percent for everything," says Craig Morningstar, chief operating officer at Dynamic Wealth Advisors in Scottsdale, Ariz. That includes the mutual fund fee known as the expense ratio.
"Employees have to take an active interest in what their company is offering. When there are enough inquiries, employers will look to see what they have," Morningstar says. In other words, the squeaky wheel gets the grease.
If plan fees are unreasonably high, participants should also ask if the plan is working with a professional plan fiduciary -- a named fiduciary can save a plan enough money to more than make up for their expense.
Workers can most easily control mutual fund costs by making smart investment choices. Since high fees can negate any outperformance above benchmarks, low-cost index funds are generally the best bet.