Avoid the Sticker Shock of Upcoming 401K Fee Disclosure

Shocked by 401k Fees

Shocked by Those 401K Fees?

Starting in the second quarter of 2012, the Department of Labor will require all 401K plan sponsors to disclose investment and administrative fees charged to plan participant’s retirement accounts.

The new regulation is intended to help employees understand where their money is going and help them make decisions that are more informed.

The concern among plan sponsors is that next year may be the first time many investors are even aware the fees exist.

Don’t let the newly disclosed 401K fees discourage you from saving for retirement.

Prevent savers remorse by taking the following into consideration:

Use the Disclosed Information to Your Advantage

Under the Department of Labor’s new regulations, plan participants will receive data regarding their investment options, including plan costs and comparison charts. Use the information to your benefit.

Review your quarterly statements with the fee disclosures to see exactly what you are currently paying and to compare fees. A fund with a higher expense ratio may be worth it if it meets your long-term needs.

Take the time to educate yourself with the new information so you can fully understand your investment options.

Forget the Myth that Retirement Plans are Free

401K plans and similar retirement plan options, like an IRA, are not free and never were. A recent AARP study revealed that seven in ten Americans are not aware they pay 401K fees. That is an alarming number of people who may be surprised by the new fee disclosures.

It’s important to remember that those fees have always been there, the only difference is that now they are disclosed and you don't have to calculate your 401K fees manually. To better understand the costs, here’s a brief breakdown of some fees associated with 401K plans:

  1. Plan Administrator Fees – These expenses cover the everyday costs of a 401K plan including record keeping, accounting and legal costs. The costs associated with educational software and electronic access to your plan can also be bundled under this heading.
  2. Individual Service Fees – Some plans have additional fees for special features and options. These are usually applied to the specific participants who elect a special feature – not to all plan holders. An example would be a fee associated with a 401K loan.
  3. Investment Fees – These cover the highest percent of your 401K fees and are generally assessed as a percentage of assets invested. They’re usually investment and management related expenses stemming from trades, loads, redemption costs, account maintenance and transfer charges.

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Good News Could Result from the Fee Disclosures

The increased 401K transparency has the opportunity to bring down fees. Service providers disclosing more information about employees’ retirement account charges will be accountable for providing employees with plans that have cost-effective investment and administrative fees.

The New Year will bring new fee disclosures, but don’t let sticker shock affect you and your retirement future. Use the available data to compare investment costs, reevaluate your portfolio’s performance and make the information work for you. Though these disclosures may be surprising at first, you’ll have a better idea of where your money is going and that’s certainly a good start.

Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost effective 401K advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.

Image by Gabriel Porras

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Last Edited: May 18, 2018 @ 12:55 pm


  1. As a Libertarian I usually don’t like government regulation; but proper disclosure should be part of a free and open society. I hope these disclosures educate investors and cause increased competition to lower expenses!

    This article will be included in the Self-Directed Investing For Retirement Carnival on the AAAMP Blog.

  2. MyMoneyDesign.com says:

    Thanks for bringing this issue to attention. I am glad to have transparency with 401k fees. As your article points out, it will be helpful to know if you are paying too much for one fund when a cheaper index fund will do just as good. Regardless, this is not going to prevent me from trying to reach the newly raised maximum $17K contribution limit.