October 21-27 is National Save for Retirement Week and this is a great time to stop and assess your retirement goals and savings strategy, and to see where you are by checking your retirement benefit statements.
By now you and the nearly 72 million American workers in 401(k) type plans across the country may have received a very important document in the mail from your employer. This document concerns your 401(k) account, and the fees you pay for it.
A new rule enacted by the Department of Labor went into effect this summer which required that many private sector employers begin disclosing those fees to workers by August 30. This is the first time that employers who sponsor retirement plans have been required to disclose this type of fee information. Some have called it the biggest thing to happen to the 401(k) since these plans were created.
Many recent surveys have shown that most workers with 401(k) and similar accounts are unaware that they pay any fees for them. The truth is that retirement savings plans aren’t free. And it’s why we issued new fee disclosure rules to help you understand what you’re being charged to invest in such a plan.
No matter how generous your employer is in helping you save for the future, your retirement plan isn’t free – you’re paying for it – and as a consumer you’re entitled to know what you’re being charged. Our new rules are designed to increase transparency and ensure your hard-earned savings are not diminished by hidden costs and excessive fees.
Specifically, there are investment management costs which primarily consist of what a fund company charges to manage the funds in which you’re invested. There are also administrative costs for retirement plans such as costs for recordkeeping, accounting and legal services. We estimate that paying just 1-percent more in fees can cost tens or even hundreds of thousands of dollars in retirement savings over the course of a career.
Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. That 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent. That’s a big deal— and a lot of money for anybody to lose to fees.
I can’t stress enough how important it is for you to open these disclosure documents. This is not just another piece of mail in the pile. The information it contains has the potential to make a real difference in your retirement savings.
You can use the information to ask better questions, weigh options, and make smarter investment decisions. You can also encourage your employer to consider making changes to the plan and to shop around for a lower cost service provider. It would not only benefit you and your fellow workers, but could also benefit your employer.
If you don’t remember seeing these disclosures and you work for a private sector employer (public plans and church plans are not covered by these rules), go back through the mail and look for them, or ask your employer if your plan is one for which such disclosures are due later this year. And, keep a lookout for the quarterly statements most of you will receive by November 14. These statements will detail charges deducted from your individual account from July through September.
We at the labor department know that saving money for retirement can be challenging in these tough economic times. And every dollar counts. But you can ensure that you have as much as possible in your nest egg by keeping an eye on the fees you’re paying.
Finally, if you are a worker, spouse or family member who has questions about your retirement plan benefits, please feel free to contact one of our Benefits Advisors. Visit our participant assistance website at www.askebsa.dol.gov or call us at 1-866-444-EBSA (3272).
For more information about fees for saving in 401(k)-type retirement plans, please visit:
Understanding Your Retirement Plan Fees Http://www.dol.gov/ebsa/publications/understandingretirementfees.html ]
Tips on Using Fee & Investment Information from Your Retirement Plan http://www.dol.gov/ebsa/publications/feedisclosuretips.html ]
Phyllis C. Borzi is the assistant secretary of labor for employee benefits security.