A three part series by Bloomberg TV originally aired on 6/19/2008 reveals "The Truth Behind Hidden Fees in 401k Plans."
According to a survey conducted in 2007, 8 out of 10 people who have 401k accounts are completely unaware of the management costs for their 401k fees. The fees are buried in fine print and so confusing they may as well be in a foreign language.
The U.S. Department of Labor says that plan managers can have as many as 17 different kinds of fees charged to your plan. Have you ever heard of Wrap fees, Revenue Sharing, Surrender Charges, finder fees, 12B-1 fees, Soft Dollars, and Shelf Space fees?
These are just a few of the many terms used to levy fees against 401k retirement plans for brokerage or management costs. What you don't know can hurt you.
The money saved in a 401k account should compound over the years to make a comfortable nest egg for retirement. How much of this is offset by management and brokerage fees? Most of us don't seem to know, but according to Ted Benna of Malvern Benefits Corporation "401k fees at 2% over a period of time can erode as much as half a person's savings."
Edward Siedel- SEC Investment Management Division tells us that excessive 401k fees have become "epidemic". He has seen fees in excess of 3%-5% and tells us that fees this high can "kill a retirement nest egg!"
SEC Chairman Cox says that "unless 401k balances climb a lot higher, more and more Americans will be forced to work in their Golden Years to make ends meet." As he put it, "pension plans are going the way of the 8 track tape".
With about 3 trillion dollars in 401k investment plans, Americans should take notice and ask questions. Burton G. Malkiel PhD of Princeton University tells us that financial institutions and insurance companies aren't obligated to disclose management fees and often when they do, it's done in such an obscure way that it is very difficult to understand.
What can you do about it? Unless laws governing disclosure rates change in the near future, there is not much you can do except ask. You can be aware of the fact that 401k fees could make the difference between eating cat food or cordon blue in your retirement years.
One thing to consider is to not put all your eggs in one basket. Think about starting a small online business by building a blog and doing the necessary things over time to draw traffic to your site. Pick something that you have experience and an interest in. In this way you can make a niche and grow your small business over time.
Building a small business online can be enjoyable and will offer the standard tax advantages for the costs associated with supporting this business at home. The actual start up costs can be minimal and you can build your blog or online business at your own pace.
Ask your broker about your 401k fees. Don't put all your nest eggs in one basket. Having a 401k, with social security and a small business can help you hedge your bet against receding assets in what should be your "Golden Years".