Your 401(k) plan is not free

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Every paycheck, you save some money for retirement. And that’s a good thing.

Many people think the best thing about that workplace plan is the cost. If you’re like half the people in a recent survey, you think the investments in a workplace retirement plan or through a retail brokerage are free.

But they’re not.

As for those who do know they’re paying something: They generally have no idea what they pay.

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Retirement plans are like lunches

“Everyone knows nothing is free in life,” says Laura Varas, founder and CEO of Hearts & Wallets, which conducted the survey. The company researches the design and marketing of retirement plans and investments.

But there’s a major problem, Varas says:

  • Many Americans don’t know what they pay.
  • Many others believe they don’t pay anything beyond the cost of the actual investments or products.

ADVISER SEARCH: Find a financial adviser today.

What investors want

While some products and services are more bargain-priced than others, and individuals might choose to pay higher prices for a higher service level, for example, Varas says consumers should know what they pay, and what they are paying for. After asking 5,000 retirement plan investors what they want from their financial services providers, Hearts & Wallets says investors of all life stages and income levels are becoming more demanding.

The survey found these 3 items atop investors’ wish lists:

  • Clear and understandable fees.
  • Having their interests put first.
  • Having things explained in understandable terms.

What are you paying for?

The fees on your workplace retirement plan investments are not set. For nearly 4 years, your retirement plan has been required to show you the fees. Your company is not obligated to offer you the cheapest investments — but it does have to be able to show that the fees are reasonable.

In fact, the Labor Department counsels companies not to consider fees in a vacuum. What’s the going rate for comparable services? What do others charge for the same products and services in the same geographic area? Fees “are only part of the bigger picture,” the Labor Department says. Other things to consider are investment risk and return, and the quality and amount of service being provided.

If your investments come with a lot of customer support — an interactive website, phone support and adviser services, to name a few — the fees might well be higher.

Some of the types of fees you might see on your statement are management fees, which cover the cost of managing the assets in the fund, or could be used for administrative expenses. These can go under several different names, such as investment advisory fees or account maintenance fees. Sales charges can also apply.

Other fees can be charged for recordkeeping, furnishing the investment statements, toll-free telephone numbers and investment advice involved in the day-to-day management of investment products.

Varas says it is the industry’s responsibility to outline clear prices for products and services, and regulation also plays a part, “but in the end,” she says, “there’s no substitute for an informed consumer.” In other words, it’s up to you to scrutinize the investments on your quarterly statement and learn what the fees mean.

ADVISER SEARCH: Search today for a financial adviser in your area.