Many Americans are unaware of 401(K) fees

Many Americans are unaware of 401(K) fees

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401-unaware

In a survey by the National Association of Retirement Plan Participants (NARPP), it was found that 58% of employees in the United States do not know they pay fees in their 401(k) plan. On top of this, only one in four knew how their retirement savings plan fees are calculated.

The reality is, everyone with a retirement savings plan, like a 401(k), pays fees that typically range from 1.5% to almost 4% annually. And the confusion persists despite mandates by the Department of Labor (DOL) requiring company sponsors to provide explicit transparency surrounding these fees.

Why these facts are important

Over time, these fees, while they may seem small and inconsequential, will compound and can consume upwards of one-third of investment returns. It is essential that investors understand the fees they are paying and the risks that are associated with higher fees.

When 401(k) investors are acting as their own investment managers, not knowing the fee information can have a huge and irreversible impact on retirement savings, and those fees account for about $35 billion ($835 per participant) in fee-revenue every year, according to the NARPP. When your organization offers a company sponsored retirement plan, it is your responsibility to  keep your employees informed.

The importance of fee disclosures

To gain the trust and loyalty of your employees, transparency is essential. The NARPP’s study found that 81% of participants said they would appreciate fee disclosures.

The DOL’s fee disclosure regulation is to ensure that workers in a 401(k) plan are given and have access to the information they need to make informed decisions. This includes all necessary information about fees and expenses and the delivery of investment-related information to allow them to compare their investment options in their retirement plans.

By allowing your employees to make informed decisions about their retirement benefits, it is integral to provide clear and transparent information. This transparency will increase employee satisfaction, which is the key to employee engagement and loyalty.

To offer clear communication to your employees about their company sponsored qualified retirement plans, talk to your retirement plan specialist, who can equip your organization with the materials and plan education programs necessary to disclose all information and reduce uncertainty.

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