401(k)s For Dummies - Time Bomb

Is there a hole in your your 401(k) bucket?  2012 new rules mandate all fees must be disclosed in 401(k)s that’ll likely shake up the few savvy investors who will take the time to read the fine print of their employer-sponsored plan. Up to now, tough-to-track 401(k) plan fees were buried deep amongst the minutia or not disclosed at all, adding to the mystery of ERISA plans.

Incredible, right? Pull out your previous 401(k) quarterly statement and see if you can locate the word “fee” anywhere on the statement. This omission is highly convenient for the large brokerages and insurance companies that provide 401(k) plans because it allows them to charge high fees, paid by investors who have no inkling of the hit their retirement accounts are taking. While these institutions must disclose all fees when asked, federal rules haven't required them to voluntarily disclose these fees — until now. 

The statement you will receive going forward (effective July 1st) will look nothing like the ones piled up in your drawer. The new, improved 401(k) statements will include an eye-opening table showing fees and actual returns for each investment before the fees are taken out.  Fees from plan providers often run more than 1 percent annually — and that’s in addition to the fees you or your client are already paying to the investment companies whose products you’ve selected. One percent may not sound like much, but like the water bill you get from a leaky faucet, it does serious financial damage over time. An independent study found that the total fees paid on 401(k) plans reduce the total retirement accounts of the average American couple by a whopping 30 percent, not to mention the damage done by the market roller coaster.

In addition to investment fees and plan management fees, many 401(k) plans allow expenses such as education and due diligence trips taken by the human resource staff to be deducted from your retirement money.

Opportunity kicking!

Many smaller companies may not even know about this new compliance issue for their 401(k) plan. It is appropriate for you to forward this article or mail a copy of it to your human resource department. Be sure to include this link to the Department of Labor.

Some 401(k) plans will offer a match to employee contributions. Surely this is an awesome benefit, but many employees are not aware of how to maximize this free money offer. If you are not happy or comfortable with your 401(k) plan, please contact us so that we can provide you with ideas and strategies that will accomplish your investment/retirement objectives. Many 401(k) plans allow investors to remove your “vested” money and roll them over tax-free into a self directed IRA. This is where we can provide you with ideas and strategies depending upon your situation. We can help you roll over your 401(k) or portion of it to provide you with an alternative that provides lifetime guaranteed income benefits. Using the “in service, non-hardship” exemption clause, money potentially could be rolled over into an IRA that allows these safer alternatives without the having to resign or leave the company.

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