You Might Want to Start Looking a Little Closer at Your 401(k ...

Jun 14 2012

I don?t know, but I suspect that most people just give their 401(k) statements a quick look? ?What is the account balance???. ?Did I make or lose money?? and then they move on to the tasks of life today, like cooking dinner and helping the kids with their homework.? If that sounds like you, you might want to think about changing that habit.

As a result of new Department of Labor regulations 401(k) plan? sponsors (the employer) and plan Investment Advisors will have to start disclosing 401(k) fees.? This will be a surprise to many people as, according to one survey, 70% of 401(k) plan participants don?t know they pay any fees.? The disclosure will come in two parts.

1. By the end of August plan sponsors will have to disclose fees to plan participants.? We?ll see if anyone ?catches? it then.
2. November statements will include, at the individual investor level, the fees actually paid.? For those that look closely at their statements I think they will be surprised and most likely not pleased.

So once you get over the shock of the fees what can you do with the information you now possess?? There are some things you can consider?

1. Don?t Throw the Baby Out with the Bath Water.? The benefits of the 401(k) (taxes, employer match) may make the fees you are paying tolerable.
2. Talk to Your Advisor.? Discuss it with your Financial Advisor and get his or her advice on what you should do (If your Financial Advisor doesn?t provide advice on your 401(k) I?d ask , ?Why??).
3. Talk to your Employer.? The plan sponsor may be willing to switch to a lower cost plan provider (Investment Advisor).
4. Transfer Old 401(k) Balances to an IRA.? If your 401(k) is with a previous employer consider transferring the balance to a Traditional IRA where costs may be lower.? There are a couple of caveats with this idea.? First, ensure you know how to transfer the funds without having a taxable event.? Next, if you have company stock inside the 401(k) make sure you look at Net Unrealized Appreciation.? Third, determine if you are willing to accept the decrease in asset protection provided by an IRA in comparison to a Qualified Plan like a 401(k).

I?ve always believed that fees are a big deal.? In fact they are one of two things you can directly control that influence your overall return.? 401(k) fees have always been there and some of them are too high.? Take this new opportunity and either by yourself or with your Financial Advisor determine your best way forward.

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