August 31, 2009


More and more employers are passing costs onto employees. Healthcare costs which historically have had roughly an 80%/20% employer-employee cost split has now shifted to closer to 70%/30%. A study by the Government Accountability Office suggests that investment fees (fees charged by companies managing mutual funds and other products for services related to operating the fund) are now almost exclusively borne by plan participants (you and me). The impact of fees (even minimal fees) over time is a concept that never ceases to amaze me. In the GAO study referenced above, a 1% per year additional fee (which may not sound like a lot) reduced the sample retirement account by nearly 17% after 20 years!

The GAO Study reviewed the topic of Private Pensions, specifically exploring the changes that are needed to provide 401(k) plan participants better information on investment fees:

- Fee information is not provided in a standardized manner;
- Results in challenging comparison of investment options and fees;
- Suggestion that investment fees become more transparent;
- That service providers disclose compensation (& potential conflicts).

Review the funds expense ratio (the funds operating fees). This is the most effective way to compare fees. It is common for consumers to not be concerned because they assume these issues don't apply to them. With 401(k)s, it is likely the opposite is the case - poor 401(k) plans are the norm - you should be concerned! Few investment options and expensive funds (i.e., index funds with expense ratios exceeding 1%) are all too common. Take action! Poor plans will remain the norm until people push for better plans. The Motley Fool provides a great resource to help arm you in your request for change. It shares the ammunition you'll need (Your Plan's Summary Annual Report, Summary Plan Description, and/or Fee Arrangement) as well as a sample letter that will provide the factual information needed (rather than merely an emotional argument) to get things rolling in the right direction. Good luck!