NEW YORK (AdviceIQ) -- Saving money in 401(k)s comes with a few strings attached -- fees. The fees in retirement accounts are probably the biggest obstacles to saving successfully for retirement, and many of these fees are undetectable to the untrained eye.The good news is that new regulations mandate that the fees be better disclosed. Pay attention to the information. If you are an employer, the rules impose new requirements on you. Let's look at how fees nibble away at your returns and how the new disclosures can help: How high are these fees? Typically, 401(k) fees run from 0.25% to 1.5% annually. The fees come right out of the savings in your account, and there is no requirement to notify you about them. In the past, when you got your quarterly 401(k) statement in the mail, you didn't see a line-item expense labeled "fees." That changes this year with the regulations. The bulk of these fees are for investment services. Most 401(k)s contain mutual funds, and investors have to pay fees to the fund managers. Some plans also charge fees for legal, administrative, record-keeping and even advertising costs. What it costs you. On PBS's recent Frontline program, The Retirement Gamble, Vanguard Funds founder John Bogle provides a chilling example of the harm fees do. He demonstrates that if the annual fees are 2% and the investment's gross returns are 7% annually, then after 50 years, your net return of 5%, also means you lost 61% of your potential returns because of high fees. Just a single percentage point difference in fees and expenses leaves you with significantly less money for retirement. Multiple studies show these fees blindside investors. In 2007, the Government Accountability Office reported that about 80% of 401(k) plan participants didn't know how much in fees they pay. A 2011 AARP survey also found that 62% of investors didn't understand the fees that they paid for 401(k)s. Regulatory changes. To make the 401(k)s more transparent, the Department of Labor is implementing new regulations this year. They intend to make indirect plan costs visible and leave plan participants better informed. Beginning April 1, the DOL requires 401(k) plan sponsors to disclose fees and expenses to all plan participants. Specifically, the expense ratios of the funds within the plan must be disclosed, along with the amount per $1,000 that it costs participants to invest in a particular fund.
- You have to assume greater degrees of vigilance and diligence.
- You have a new obligation to gauge the acceptability of the plan vendor's fees and costs.
- It is in your best business interest to review your 401(k) plan regularly and test it periodically to check that your employees get the best available offerings from the plan vendors.
- Check whether the plan vendor sends you suitable fee and expense disclosures. This should be routine.
- Review these disclosures to make sure they are sufficiently transparent to conform to federal law.
- Audit the plan with the input of an independent consultant to see if the fees are appropriate. See whether the existing service arrangement is reasonable or if your employees are getting gouged.