Last week, I got my 401(k) plan fee disclosure notice in the mail. I almost threw it away.
At first, it looked like all of those form notices you get – you know, the ones with the window envelope and “US Postage Paid” in the top right-hand corner. Not the most exciting-looking mail.
So, why am I telling you?
Because I work for the Bureau’s Office of Financial Protection for Older Americans, and because I’m an older American learning through my own experiences. A big part of our mission is to help people understand how to plan and save for retirement.
What’s a 401(k)?
A 401(k) account helps you to save for retirement by making contributions from your paycheck. In some plans, your employer also makes contributions. In many cases, participants choose from among the investment options available through the plan. The money saved in a 401(k) account, and the growth in the account, isn’t taxed until you retire. This tax deferment helps your retirement savings grow faster.
While everyone with a 401(k) plan pays fees, an AARP survey found that over 70 percent of people with a 401(k) thought that they weren’t paying any fees at all.
Possible fees include investment fees for the funds, stocks, bonds and other investments you choose, individual service fees for things like taking out a loan from the plan or selling shares in a particular investment fund, administrative fees and more.
That’s where last week’s mail comes in. Under a new rule from the Department of Labor, everyone with a 401(k) must receive an annual disclosure about fees. Many have received them already and more will get them in the mail around Labor Day. To see how fees can affect your retirement savings, check out this video:
How will this new information help me?
The disclosure will tell you the fees and expenses for the investment options your plan offers and how those investment funds have performed over time. You can use the statement to compare your options.
What can I do to get a better deal?
If you think the fees in your 401(k) plan are too high, you can ask your employer to find more cost-effective investment options or plan services.
What else do I need to know?
Remember that fees are not the only factor in choosing 401(k) investments. Your plan may offer access to professional investment advice. If you’re thinking about rolling over your 401(k) savings into an IRA, consider that IRAs have fees, too, and those fees could be higher than your 401(k) plan fees.
And of course, I’ll be there learning with you along the way.