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How Much Are You Paying For Your 401(k) Plan?

  Sanjiv Gupta CPA  Published 
How Much Are You Paying For Your 401(k) Plan?

How Much Are You Paying For Your 401(k) Plan?

Have you ever wondered “How much are you paying for your 401(k)?”  There is a good chance that your HR has not discussed this particular figure with you but starting Aug. 30, that will change.

An unprecedented policy change, the U.S. Department of Labor will require employers or administrators of 401(k) plans, to disclose how much they are charging to operate these retirement plans.   This new policy is being welcomed by many certified public accountants and financial advisors including my boss, Sanjiv Gupta CPA.

“Some employers or administrators may be getting worried because they may not want to openly discuss this particular figure,” says Sanjiv Gupta, CPA.

The cost of retirement plans can vary but you can expect anywhere between .3 to 2% if your account balance is less than $50,000.   Some of you may even choose to move your retirement plan once you know the exact cost of your plan.

“You don’t have to wait till August to find this number. Simply ask your CPA or Financial Consultant.  In simple terms, this cost can add up to hundreds of thousand dollars over you the life of 401K account.” advises Mr. Gupta.

You should also note that employees of small companies are probably paying more for their 401K account than the employees of a larger company.  Larger employers have more leverage and usually have better and cheaper retirement plans.

New companies or companies will a lot of newly hired employees are also likely to have a higher cost and this higher cost ends up divided among participants.

Before you go all nuts about the cost of your retirement plan, let me remind you that understanding the true costs of a 401(k) hasn’t been easy — even for employers but that is about to change.

 You should expect this in the mail or on your desk very soon.

You will receive a 20-page document will a lot of information divided into 2 main sections.

  •  Along with your investment options, you will also get an explanation of administrative expenses and fees such as legal, record keeping and accounting.
  •  You will also get an explanation of what kind of fees and expenses can be deducted from your account.

You will also get investment-related information:

  •  You will get some financial information about the historic performance.
  • And benchmarking information comparing investment with the broad-based market index

You will also get some other annual operating expense report but it’s not free.   The cost for providing this information is about $4 and your employer is allowed to subtract this from your 401(k) quarterly.

 What can you do with this kind of report? Start by asking some questions to yourself.

  • What are the total all-in fees and expenses?
  • What are we getting a return for the cost?
  • How much it will cost me over the life of retirement account?

This new will make employers look twice at the price they are paying for 401 (k) plans and motivate them to offer better options.  At the same time, employees should not focus solely on plan costs.  You may get some really good fund managers or some really good fund options.

You should also note not to put too much in your company stock.  This can be seriously dangerous if your company's financial health gets in trouble.

401(k) plans are important decisions and you should consult with your CPA or financial consultant on a quarterly basis to make sure you are getting the most for your money.