401k Price Comparisons: The Impact of Hidden 401k Fees on the Total Cost of a 401k
Many, if not most 401k plans contain significant hidden fees. These fees are being secretly lifted from the back pockets of 401k plan participants. The US Department of
Labor is trying its best to force 401k plan providers (banks, mutual fund companies, insurance companies, brokerages, etc.) to come clean about these hidden fees. There
is significant lobbying power at play to stymie the government’s effort to force 401k fee disclosure.
Here are the facts:
According to a recent study by the ICI (Investment Company Institute) and Deloitte [http://www.ici.org/pdf/rpt_09_dc_401k_fee_study.pdf] the average 401k is charging the
typical employee-participant .72% of the value of his or her personal 401k account in hidden fees. These fees are extracted directly from the 401k participant’s account,
and no receipt or report of this payment is provided to the participant. In their study ICI and Deloitte call these hidden fees "all-in" fees. This average hidden fee of .72%
equates to $350 per plan participant per year, extracted directly from participants’ accounts, without in most cases, the employee’s knowledge or consent. But for small
401k plans, those with less than $1 million in total assets, the hidden "all-in" fee jumps to a whopping 1.89% per employee ,or about $920 per plan participant per year!
Are you thinking about offering a small 401k to your employees? Did you know that in all likelihood your employees may be unknowingly subsidizing the company’s 401k plan
to the tune of $350 to $920 a year?
The employer typically pays the 401k plan’s annual recordkeeping and administration fees. These fees vary, and below is a representative sample of annual recordkeeping
401k Easy Online
and administration fees for a company with 15 employees and $1 million in assets:
The Online 401k
Employee Fiduciary 401k
(www.employeefiduciary.com ): $1,500
When selecting a 401k for the company, employers should insist that 401k plan providers fully disclose their asset-based "all-in" fees. The true impact on the real net cost of the 401k plans mentioned above, when adding in the hidden "all-in" fees creates a very different picture:
401K Easy Online:
$995 + ["all-in" fee of $500 max. paid to asset custodian] = $1,495 per year.
The Online 40k:
$1,100 + ["all-in" fee of 0.72% to 1.89% of $1 million] = $8,300 to $20,000 per year.
$1,350 + ["all-in" fee of 0.72% to 1.89% of $1 million] = $8,550 to $20,250 per year.
$1500 + ["all-in" fee of 0.72% to 1.89% of $1 million] = $8,700 to $20,400 per year.
$1,080 + ["all-in" fee of 0.72% to 1.89% of $1 million] = $8,000 to $20,700 per year.
So it’s not rocket science to understand why many in the 401k industry is blowing smoke to make any public discussion about 401k fees confusing and bewildering. There is a great deal of money at stake, and all this smoke clouds the fact that most employers offering 401k plans with hidden fees are doing so because they have frequently been misled by their plan providers.
Now that hidden 401k fees are getting noticed by my the news media and the legal profession via class-action lawsuits, some 401k plan providers that made fortunes mining hidden fees are scrambling to cover their tracks, and create the kind of PR confusion many of us remember from years past, when major tobacco companies tried to explain to Americans that smoking was not hazardous their health. The 401k industry is launching the same kind of PR assault, confusing and clouding the issue, but what is really at stake is the end of their 401k hidden fee gravy train, pure and simple.