Hidden 401(k) Plan Fees Are Eroding Retirement Savings, Study Says
Workers may not be receiving the full value of their 401(k) retirement savings because of hidden fees, according to a new study by Employee Fiduciary LLC.
The study aggregated data from over 100 fee disclosures collected from 31 different plan providers since December 2018. The data, used by plan fiduciaries to benchmark their fees or evaluate providers, included a breakdown of each provider’s average all-in fee (expressed as a percentage of plan assets); the average cost of a provider’s admin fees to each participant; and the percentage of admin fees charged as hidden fees through revenue sharing or variable annuity arrangements.
The study found that that 75.96% of plans paid “hidden” administration fees, costing plan participants an average of $228 annually. Employee Fiduciary said that when factoring in compound interest, $228 could easily scale to hundreds of thousands of dollars in lost returns over several decades of retirement saving.
Employee Fiduciary found that six of the top 10 highest-priced 401(k) plan providers, based on their per capita administration fees, also ranked among the top 10 providers charging the highest percentage of hidden fees, and that nine out of the 10 were insurance companies
In February, 2012, the U.S. Department of Labor began requiring 401(k) providers to disclose their fees in documents called 408(b)(2) fee disclosures, Employee Fiduciary said. While intended to provide transparency to plan fiduciaries and their participants, Eric Droblyen, writing for Employee Fiduciary, said the disclosures more often take the form of confusing, multi-page documents that are difficult for someone without years of 401(k) expertise to decipher.
Hidden 401(k) fees are incredibly profitable for these providers, so it's in their best interest for their fee disclosures to be confusing.
According to Droblyen, fees are difficult to compare for two reasons: First, public information reported in Form 5500 provides only snippets of 401(k) fee data and is generally not suitable for completing a benchmark comparison. Second, 401(k providers can charge “hidden” administration fees that fall into the two categories of revenue sharing and wrap fees, neither of which can be found in 408b-2 fee disclosures.
“In short, ‘following the money’ is a difficult job, even for those employers willing to invest the time and energy to do so.”
Study Appears in FA-mag.com – original article by Joyce Blay Click Here
Employee Fiduciary LLC, founded in 2004, is a 401k plan provider for small businesses headquartered in Mobile, Ala.