By David Pitt, AP Personal Finance Writer
Retirement savings is a central topic in the Obama administration's proposed initiatives to help struggling middle class families. And one of the concerns to be addressed is improving the ability of workers to determine how much they're paying for the management of their 401(k) plan.
Making smart spending decisions often means comparing costs. The problem with retirement plans is it's often difficult to figure out exactly how much you're being charged because 401(k) fees are not spelled out very clearly.
The call for greater disclosure is centered on the fees workers pay for the operation of their retirement plans.
Even though several bills have been drafted in Congress to force 401(k) providers to lay out fees in plain language, the push for greater fee disclosure hasn't gained much traction.
This week's push to make it one of the administration's priorities was applauded by Rep. George Miller, D-Calif., the chairman of the House Education and Labor Committee, and author of a bill on fee disclosure.
"President Obama's call for transparency is welcome because workers deserve to know how much Wall Street is taking from their 401(k)s," Miller said.
One reason it's often hard to get a handle on 401(k) expenses is that not all of the charges are paid directly by plan participants, some expenses are paid by employers.
If you could lower fees in your 401(k) by 1% throughout your working years, you could as much as double your account balance by the time you retire, said Kristi Mitchem, a managing director at BlackRock Inc., a mutual fund provider.
One issue under consideration by regulators and lawmakers is requiring companies to provide an "all-in" fee that includes investment management and bookkeeping costs together.
For now, though, employees can just focus on those fees they can control, which are reflected in the expense ratios quoted in quarterly 401(k) statements.
These cover the operating and management costs of their mutual funds.
A study conducted last year by Deloitte Consulting for the Investment Company Institute indicated median total operational costs were $350 a year. This was the equivalent of 0.72% of assets, using the median account balance in the survey of $48,522. On the extremes, the study found that 10% of plan participants paid $103 or less in expenses, while another 10% paid $842 a year or more.
Here are some of the most common 401(k)fees:
Administration: Covers the cost of keeping records, customer service, providing statements and regulatory compliance. These fees could include cost of providing investment advice, electronic access to plan information and online transactions. They may be deducted from your investment returns, paid by the employer or charged against assets of the entire plan.
Investment Management: Covers costs to manage the assets, which may include payments to portfolio managers, trading costs including commissions on stock transactions, investment research costs. These fees are typically deducted directly from your investment returns and are sometimes difficult to determine from literature provided. Typically assessed as a percentage of invested assets.
Service Fees: Charged in some plans to cover optional features including 401(k) loans and short-term trade fees. They are charged against the individual account of the person using the service.
It's difficult to pull all the information on fees together. Some fees may be described in quarterly reports while others are only detailed in annual prospectus documents.
Further adding to the problem is that fees can be calculated in different ways. Some are based on the amount of money held in the plan and are usually listed as a percentage or number of basis points (1/100th of a percent). Some fees are charged per person and are based on the number of employees in the plan, while others are transaction-based, meaning they are charged for a specific transaction or service provided.
Even flat rate fees, which remain the same regardless of the number of employees in a plan, may be calculated in different ways and there may be one-time charges for major changes in the plan or ongoing expenses.
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