Dear Dagen: 401(k) Rollover Fee Causes Sticker Shock - TheStreet

Dear Dagen: 401(k) Rollover Fee Causes Sticker Shock

Yes, these plans can have annoying fees, but a $75 distribution fee seems excessive.
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A few months ago, I had my former employer transfer my Fidelity 401(k) plan to a self-directed Fidelity IRA. My former employer charged me a fee of about $75 to do this. I found out only after the fact. Is that kosher? --Larry Bowers

Larry,

That might be a reasonable price for a few ounces of Osetra caviar. But for a 401(k) rollover, $75 seems excessive.

401(k) plans can come with some annoying ancillary fees attached. You might get charged for record keeping. And if your plan offers full brokerage services -- a growing trend -- you might have to pay extra for that. But such a high distribution charge is almost inexplicable.

In fact, some financial professionals argue that a plan sponsor, such as your old company, can't legally pass along distribution charges to participants. A key law that governs 401(k) plans is the

Employee Retirement Income Security Act

, or ERISA. A plan participant can't be charged for activities that are fundamental rights under ERISA, including distributions, the argument goes.

Obviously, many plans interpret the ERISA laws differently. In practice, individuals can wind up paying some fees for distributions.

But when you do see a distribution fee, "it is usually for a specific transaction, like a wire transfer," says Rich Koski, a principal at

Buck Consultants

, a benefits consulting firm in New York. Or you might have to pay $10 or $15 for the check that gets issued. Sometimes the first check is free and you get charged for additional checks. Those types of fees, though not common, are just meant to offset expenses, not make money.

A wire transfer fee may be $20 or $25, but it's even less common than a check fee. It's unusual for a participant taking a distribution to use a wire transfer. There's just too much room for error. Even in these electronic times, "most plans will send a check made payable to the rollover institution in the participant's name," says Mike McCarthy, a 401(k) consultant with

Hewitt Associates

in Lincolnshire, Ill.

Though distribution fees are uncommon, you still may encounter annual fees for other services.

Plenty of plans pass on annual maintenance, record-keeping and support fees to participants. Sometimes these fees come right out of the plan's assets and are hard for you to quantify. You won't see a flat dollar amount being deducted, but, as one of the participants in the plan, you are shouldering your share of the expenses. But you might see a flat annual maintenance fee taken out of your account.

You can also pay more for what I'll call "special services." For example, if a plan offers a full brokerage account as an option, you could pay $50 or $100 a year, maybe more.

But distribution fees are different.

It would certainly not be in Fidelity's best interest to tack on a big distribution charge. Any fee, especially one that high, would seem unnecessary, especially for money moving elsewhere within the same company. "A firm would love to keep the assets. I would imagine there wouldn't be any charge at all," says one industry professional. A fund company should want to waive fees and loads to get you to keep your money in their coffers. These firms, after all, do earn a nice annual expense on the funds you own.

You did point out that it was your employer that hit you with that $75 bill, not Fidelity. "It's possible that the employer is charging you some of

the transactional fee," says Koski. "It depends on how the administration of the plan is set up. It's possible but not common."

The best advice for you: Demand that your ex-employer justify that fee. "Can they demonstrate that the fee was reasonable?" asks Koski. "The best you can do is make noise."

The 401(k) plan should have a "summary plan description" that outlines any fees that you might have to pay though it may not go into the specific dollar amounts. You were probably given this document when you signed up for that plan. If you don't have it at your fingertips, call your former employer and start digging.

If you still think the fee is totally unjustified, you can contact the

Labor Department's Pension and Welfare Benefits Administration

. This division's office of technical assistance and inquiries can be reached through one of 15 field offices. To find one near you, visit the Labor Department's Web site at

www.dol.gov .

You can also write the Labor Department at the following address:

U.S. Department of Labor

Pension and Welfare Benefits Administration

Office of Technical Assistance and Inquiries

Room N-5625

200 Constitution Ave. NW

Washington, D.C. 20210

Send your questions and comments to

deardagen@thestreet.com, and please include your full name.

Dear Dagen aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.