What do you really pay for your 401(k)?

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Your 401(k) plan vendor and your employer might be gaining hidden profits from your investment. By the time that you retire, you might be forking over millions of dollars. Industry watchdog David B. Loeper tells CD that even if your investment expense ratios are fairly reasonable, there is a long list of hidden fees that neither the financial industry nor your employer is obligated to disclose. These include administrative costs, advisory fees, trading costs, money market spreads, mortality and expense charges (because many 401(k)s are offered by insurance companies) and separate account and custodial fees. On the surface, your Summary Annual Report might not appear to hold information pertaining to your account, but it does, Loeper says.

For example, let’s say your report lists expenses of $1.2 million including $54,000 in administration costs, $1.046 million in benefits paid to participants and beneficiaries, $100,000 in other expenses and total year-end plan assets of $10 million. To figure out how much of those expenses you paid, take the total plan expenses of $1.2 million and subtract the $1.046 million in benefits paid to participants. That leaves $154,000 in administration and other expenses that were charged to you and your coworkers’ retirement assets, Loeper says. To figure out how much of that $154,000 you paid, divide $154,000 by the total plan assets of $10 million, which equals 1.54 percent, he says. Multiply your 401(k) balance by 1.54 percent. The result is the additional amount that is charged to you above and beyond expense ratios for the investment products or other fees that show up on your statement, Loeper says.

Loeper advises that you compare costs for the alternative 401(k) investments that are offered via their expense ratios.

S. Berg