Hidden Commissions May Be Depleting Your 401(k)
Surcharge In Shares May Be Hard To Detect
Herald News (Passaic County, NJ)
April 26, 2006
NEW YORK -- Somebody's been dipping into your 401(k) plan without your knowledge. Hidden management commissions, obscure enough that few employees can even find them, are a growing problem inside the universe of company-sponsored retirement plans, according to a front-page story in Sunday's Los Angeles Times.
It's a given that mutual funds charge fees for management and other expenses. Since most 401(k) plans rely primarily on funds to grow employees' savings, those annual costs are typically disclosed and should be easy to figure out by looking at your account statement or a fund's prospectus.
But a more insidious form of surcharge is also being levied and employers don't mind because it's the worker that pays these extra fees.
Plan providers can be mutual fund companies or private specialists, and some charge each contributor a commission on his or her retirement account in addition to the cost of investing in a particular mutual fund offered through the plan.
But rather than deduct that annual fee in cash — which would appear as an easy-to-read line item on your annual statement — they often take their cut in mutual fund shares, sometimes in quarterly installments, making the transaction almost impossible to locate since most plans invest contributions and reinvest dividends as they come in.
To find out what's missing you would have to keep a very close eye on the pennies and dollars and fractions of shares you should have in your account.
And these extra fees can add up because the larger your 401(k) nest egg, the larger the annual commission. The more you save the more they take.
To make matters worse, there isn't much you can do about it except to badger your employer to get you — and your colleagues — a better deal. Scrutinize your plan statement for administrative charges and other unexpected fees and inquire with your company's benefits department.
Pulling out of the plan — rolling over into an IRA, say — probably isn't a good solution since 401(k)s often come with incentives like matching contributions from your employer that would be unavailable should you go it alone.
Marshall Loeb is a columnist for Knight-Ridder News Service
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