And the True Impact of Hidden 401k Fees on the Cost of a 401k
Many 401k plans contain significant hidden fees. This is especially true of 401k plans offered to small companies, where it is easier to hide fees from small business owners, who are busy running their businesses and do not have the time or staff to review all the legal mumbo-jumbo of setting up a new plan or reviewing plan documents.
These hidden fees are being lifted from the back pockets of 401k plan participants. The US Department of Labor is trying to force 401k plan providers (banks, mutual fund companies, insurance companies, brokerages, etc.) to come clean about these hidden fees. But there is significant lobbying power at play to stymie the government's effort to force comprehensive 401k fee disclosure.
Here are the facts:
According to a recent study by the ICI (Investment Company Institute) and Deloitte titled, "Defined Contribution / 401(k)
Fee Study". the average 401k plan has hidden fees of 0.72% per year. That may not seem like much, but it costs the average participant about $11,000 in hidden fees for the lifetime of his or her 401k. These fees are extracted directly from the 401k participant's account. In their study, ICI and Deloitte call these hidden fees "all-in" fees. The average hidden "all-in" fee of 0.72% equates to $350 per year, extracted from participants' accounts.
For small 401k plans that cover less than 20 employees and less than $1 million in total assets, the hidden "all-in" fee situation is much worse. For small 401k plan participants, hidden "all-in" fees can jump from 0.79% to a whopping 1.89%, or up to $920 per plan participant per year! For small plan participants, this can mean paying an astounding $28,000 in hidden fees for the lifetime of his or her 401k. See pages 6, 16, 19 and 20 of ICI/ Deloitte report by clicking the report cover. If you are selecting a 401k for your employees, did you know they could be unknowingly losing $350 to $920 a year in hidden fees?
In most 401k plans, large and small, the employer pays the 401k plan's annual record keeping fees. These fees vary; below is a representative sample of annual record keeping fees:
Record keeping fees:
For a company with 15 employees and up to $1 million in assets
- 401k Easy Online (www.401k-easy-online.com): $995
- The Online 401k (www.theonline401k.com): $1,100
- Wellington 401k (www.wellington401k.com): $1,350
- Employee Fiduciary 401k (www.employeefiduciary.com): $1,500
- Sharebuilder 401k (www.sharebuilder401k.com): $1,080
Below is the true impact of plans cost, with "all-in" fees added in:
|Record keeping fees plus "all-in" fees for a company with 15 employees and $1 million in assets
| 401K Easy Online
||$995 + [No hidden "all-in" fees]
||$995 per year complete!
| The Online 401k
||$1,100 + ["all-in" fee of 0.72% to 1.89% of $1 million]
||$8,300 to $20,000 per year
| Wellington 401k
||$1,350 + ["all-in" fee of 0.72% to 1.89% of $1 million]
||$8,550 to $20,250 per year
| Employee Fiduciary
||1500 + ["all-in" fee of 0.72% to 1.89% of $1 million]
||$8,700 to $20,400 per year
| Sharebuilder 401k
||$1,080 + ["all-in" fee of 0.65% of $1 million]
||$7,580 per year
So it's not rocket science to understand why many plan providers in the 401k industry are blowing smoke to make any discussion about hidden or "all in" 401k fees confusing and bewildering. There is a great deal of money at stake, and all this smoke clouds the fact that many small employers are unknowingly offering their employees 401k plans laden with hidden fees.
Hidden and "all-in" 401k fees are getting noticed by the news media and the legal profession via class-action law suits, and some 401k plan providers that made fortunes mining hidden fees are now scrambling to cover their tracks. They are generating the kind of PR confusion many of us remember from years past, when major tobacco companies tried to explain to Americans that smoking was not hazardous their health. Many in the 401k industry are launching the same kind of PR assault, confusing and clouding the issue, but what is really at stake is the end of their 401k hidden fee gravy train, pure and simple.