Retirement: Decoding your 401(k) fees
BY JANE BENNETT CLARK Kiplinger News Service
Monday, October 29, 2012
Related Story: Insider overview: BancFirst Corp.
As a result of new fee-disclosure regulations, you now have all the data you need to see how fees are affecting your 401(k) investments. In August, you received a statement that included a rundown of plan investments, their performance and the fees each investment incurs. And in November, your quarterly statement will arrive with new information about the individual fees taken out of your account.
But, says Bradford Campbell, the former assistant secretary of labor who proposed the original disclosure regulations, disclosure “isn’t just about fees. It’s also about giving a useful and precise summary of investment options.”
For all that, plan expenses do add up. Administrative fees cover services required to run the plan, including setting up and maintaining accounts, mailing statements, and providing phone and online support. Investment expenses include the costs of managing portfolios and paying brokers’ commissions and marketing costs. Transaction fees are charged to participants for individual services. Some plans deduct a percentage of earnings from investments to cover administrative expenses; with others, the employer covers administrative costs or charges each participant a dollar amount.
Many employers have used the August statement to deliver user-friendly advice on retirement strategies. At a minimum, the statement must describe how the plan works and the types of expenses that may be deducted from the accounts. It must also include a chart listing all the plan investment options, a history of their performance, and benchmarks to help you gauge their record, along with the operating expenses for each investment.
The quarterly statement, which will appear in the mail (or online) soon, will give details about your actual account, including whatever transaction fees were deducted during the previous quarter. If you borrowed from your account, for example, you’ll see a fee of, say, $50 to cover the loan setup; if you asked that the check be expedited, you’ll see a fee of $10 or so for overnight delivery. You will also see a fee for administrative services, although it may not be broken down by service or expense.
The investment cost -- expressed as a percentage of assets, or expense ratio, on your annual statement -- is by far the biggest of the expenses, but your statement doesn’t spell out how those expenses affect your particular account. Rather, it gives the expense ratio for all the funds offered through the plan and a corresponding dollar amount per $1,000. To calculate the fees for your own investment mix, you’ll have to plug in how much money you have allocated to each investment and multiply by the expense ratio.
Jane Bennett Clark is a senior editor at Kiplinger’s Personal Finance magazine. To send her a question or comment, go to tulsaworld.com/kiplingerfeedback.