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DOL sets new rules for 401(k) fees that could make them a better deal

By Jennie L. Phipps · Bankrate.com
Sunday, July 18, 2010
Posted: 10 am ET

Do you know how much your 401(k) provider charges you in fees? It can have a big impact on your retirement planning. It's hard to calculate savings if you don't know how much in fees the total is being reduced by.

Most people get their 401(k) retirement savings plans through their employers and even if they can figure out what the fees are, it doesn't much matter because they don't have a choice. Their employer picks a company and that's that. Take it or leave it.

The amounts of retirement plan fees aren't a secret, but they have been hard for employees to uncover and calculate. Employers haven't always had the fees charged to their employee participants as the greatest concern on their benefit radars -- other factors sometimes figure large into the decisions they make about 401(k) providers.

But employees ought to care because high fees can take a surprisingly large chunk out of a 401(k) total. My fellow blogger Barbara Whelehan calculated in her blog not long ago that a "if diligent saver Jackie contributes $250 per month for 35 years and earns an 8 percent annualized return, her account grows to $539,089. But if she has to pay an additional 1 percentage point toward fees, she ends up with just $430,272. There's your 20 percent difference, which amounts to nearly $109,000."

The Department of Labor yesterday announced the latest iteration of proposals for benefit fee guidelines that will affect nearly 500,000 401(k)s and other sorts of retirement plans.

The new rules say fund providers and their consultants and subcontractors must provide the DOL and plan participants with fee information in writing, including the fees they charge and any fees charged by the companies with which they contract. The exact details of that disclosure are up in the air, but this information promises to give employees some clout to persuade employers to pay attention.

You can read the proposed rules and offer opinions via e-mail to e-ORI@dol.gov.

The DOL guidelines won't take affect for a year. In the meantime, if you have a choice between managed funds and index funds, research says that there isn't much difference in returns, but there is a big difference in fees. Some managed funds charge more than 2 percent, while index funds usually charge less than 0.5 percent. All things being equal, the less expensive fund is the way to go.

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