Your 401 (k) retirement savings account is important to you! For many of you, it will be the largest source of your retirement funds after social security. But, time and again we find that the individual plan participant, in other words, you, the “owner” of the 401 (k), know very little about how the plan itself works. Perhaps you look at your statement once a year, make a change or two in the allocation of the investment choices the plan offers, or change the percentage of your paycheck that goes towards the plan. But do you do any other homework on such an important part of your future? For example, do you know how much you are being charged within your 401 (k)?
The majority of people with 401 (k)s believe they pay nothing. Some know that the actual funds within the plan have their own fees (management fees or expense ratios), but know nothing about the fees charged by the retirement plan administrator. Many retirement plan sponsors may not know the fees that are being charged, even though it is their fiduciary responsibility to both know those fees, and believe them to be suitable in relation to other providers. Although some businesses pay these plan administrative fees, there is a higher probability that it is you, the plan participant, who pays those fees, even though you’ve never seen evidence of it on your statement.
Well that is soon to change thanks to Section 404(a)(5) of ERISA, which will go into effect shortly after November 2011. The quarterly statements you receive for your 401 (k)s will be required to include, in easy to read dollar amounts, the amount of fees that are being charged to you, both for the administration and investment management. Based on a recent report from Dalbar titled, ERISA 404(a)(5) A Game Changer?, this will affect some 72 million plan participants, and the roughly $3 trillion in assets they oversee.
This is good news for 401 (k) owners. It should create a decrease of those previously hidden fees, but it will also increase participant knowledge of the workings of their retirement plan. Plan administrators will have to prove to both the retirement plan sponsor and the retirement plan participant that their service fees are justified. Plan sponsors should look for areas to cut costs. This should, in turn, generate more efficient participant services as well as result in the offering of cheaper or better investment options within the plan, which are almost always a positive on long term rates of return.
So if you have a 401 (k), pay closer attention to those statements. Educate yourself on the fees you are being charged. Are you getting your money’s worth, or should you be pressuring your plan sponsor to find better or cheaper administrators and investment products? As in every other service you pay for in life, cost is one of the most important factors for determining the end result.
Anderson Griggs & Company, Inc., doing business as Anderson Griggs Investments is a registered investment adviser. Anderson Griggs Investments only conducts business in states and locations where it is properly registered or meets state requirements for advisors. This commentary is for information purposes only and is not an offer of investment advice. We will only render advice after we deliver our Form ADV Part II to a client in an authorized jurisdiction and receive a properly executed Investment Supervisory Services Agreement. Any reference to performance is historical in nature and no assumption about future performance should be made based on the past performance of any Anderson Griggs Investment Objective, individual account, or index. The authors of publication are expressing general opinions and commentary. They are not attempting to provide legal, accounting, or specific advice to any individual concerning their personal situation. Anderson Griggs Investment's office is located at 113 E. Main St., Suite 310, Rock Hill, SC 29730. The local phone number is 803-324-5044 and nationally can be reached via its toll-free number 800-254-0874.