Is My 401(k) Plan a Rip Off?

Worried that you’re getting ripped off by your 401(k) plan?

We can’t blame you. Lots of people are getting ripped off. Heck, millions of people get ripped off.

In fact, a recent study showed that the average American household paid almost $155,000 in fees for their 401(k) plan.

Now maybe you have so much money saved up for retirement that you don’t mind throwing away 155 large on fees -- even when those fees are often for funds that either a) track a major index (so there’s no “management” or “expertise” involved, or b) don’t perform as well as funds that track the major indices (so there are managers and experts involved, but they are awful at their jobs.)

But odds are that you’re just like everyone else -- you can’t afford such outrageous fees, and you had no idea that you were paying such outrageous fees.

The financial-services industry has made a point of making sure you don’t know what you’re paying for your 401(k) plan. They’ve built an industry out of obfuscation, small print, jargon, gibberish and indecipherable nonsense.

New legislation is coming that is supposed to end all that. But forgive us for being a little cynical.

That new legislation, you see, requires plan sponsors (your boss) to be aware of all fees charged by their plan service providers and the services they’re receiving for these fees.

In other words, there’s a new law that requires your boss not to be a buffoon when he signs on with a company to provide 401(k) plans for his employees.

Now here the whole thing just sort of falls apart.

The new law (scheduled to take effect on July 1, but it’s been postponed before) also calls for clear disclosures of fees to sponsors. In other words, it’s going to be a little bit harder for your boss to be a buffoon because now he’ll have the numbers right in front of him.

That’s good news, since the GAO says almost half of plan sponsors didn’t know if their employees were paying investment management fees! (Before we all get too upset with the boss, let’s take a look in the mirror. A study by the AARP showed that 71 percent of employees thought their 401(k) plans were fee-free!)

Read: Should I Buy An Annuity?

The New York Times says “plan sponsors are supposed to use this information to analyze whether the fees in their plans are too high. But they won’t have to pass along all of this data to participants. Instead, the sponsors will be required to calculate expense ratios for the investments offered in a plan, showing participants the charges per $1,000 invested.”

Now call us jaded, but we don’t anticipate thousands of companies across the nation suddenly telling their employees “We took a look at the numbers and noticed that you guys are paying a lot of money unnecessarily for your 401(k)s. In fact, it looks like you’ve thrown away, like, $155,000 each. We’re sorry about that. But it was really hard to read the fine print before.”

So the lesson here is this:

• Yes. You’re getting ripped off.
• No. The government is not about to help you.
• No. It’s not your boss’ fault. He’s no smarter than you.
• Yes. You’re going to have to do something about it. Perhaps it would be wise to join together with a half dozen of your co-workers, drill down into the fee issue yourselves, and make some recommendations to your boss about how to fix your company’s plan.