Paying too much for your 401(k) plan? Here are 6 steps you can take to fix it

by Jim Sloan

A lot of people feel lucky if their employer has a 401(k) plan. 401(k)s are a great way to save for retirement and to monitor your investments, but if your employers' plans carry fund fees and administrative charges that chew up too much of those investments, you should bring it to you company's attention and try to get it changed. You have options.

401(k) fees: Who charges them and who is hit hardest?

According to Neil Weinberg of Forbes magazine, about 66 percent of the workers in the private sector have a 401(k) account--about 40 million people. That number is up from 20 percent in 1980. Many private companies hire someone--such as Fidelity or Vanguard--to run the 401(k)s they offer their employees, but Weinberg says many smaller companies have "subpar" offerings with 2 to 3 percent fees that can soak up about half of an employee's investments' return.

According to Forbes.com, the average total cost of plans with fewer than 100 participants was 2.03 percent. Forbes says both large and small companies should be able to design high-quality plans that cost less than 1 percent of the plans' assets annually. The secret is using index funds and set recordkeeping and administrative fees, rather than fees based on a percentage of the assets.

6 steps to take to fix your 401(k)

Here are some ways you can assess the value of your company's 401(k) plans and suggest ways to improve it:

  1. Study the plans options. Examine the mutual fund offerings from the 401(k) with online tools that will rate the funds based on market performance.
  2. Find out if the plan has a self-directed brokerage option. This option will still cost you fees and transaction costs, but you will be free to pick your own mutual funds and securities.
  3. Get outside help. Have your own personal financial advisor, if you have one, review the plan and offer suggestions.
  4. Ask questions. It's your money, so you have a right to know how the plan works and why the fees are what they are. If your company has a 401(k) committee, volunteer to be on it.
  5. Request the fine print. All 401(k) plans are required to disclose their investments fees, but those costs are not always very clear. So ask your plan administer to provide the fees deducted from your account for recordkeeping, securities custody and advice, and get it in writing.
  6. Request the plan's benchmarking report. Every few years, big companies often have consultants compare the company's plan to others. Ask for a copy.

Why the fees matter

There have been a number of lawsuits filed in recent years accusing large companies of profiting illegally from their employees' retirement accounts. The federal law clearly states that 401(k) plans must solely benefit workers, not the company, but employees of Caterpillar, Boeing, Kraft, International Paper and several others are still in court accusing their employer of hiding fees or charging too much in fees. In several of these ongoing suits, the fees have been described as "complicated and confusing" or "excessive, undisclosed and illegal," Forbes.com said.

According to Boston College's Center for Retirement Research, small businesses manage 97 percent of the 650,000 401(k) plans in the country. But that $2.9 trillion in assets return 1 percentage point a year less than traditional pension plans. That amounts to $29 billion a year that go toward fees rather than toward your retirement.

According to Weinberg, that whopping fee doesn't really concern small companies because they don't have any skin in the game. It's their employees' money, not theirs.

So it's up to workers to bring about change - by asking questions and demanding that fees are clear and justified.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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