Clear Cut 401k plan fees

We are living in a country that believes in customer’s rights. This is why 401k plan participants should know exactly how much they are paying in fees on their retirement plan. A recent survey conducted by the AARP says that as much as 65% of plan participants didn’t know that their plan has fees.

At present lots of discussions are on the table at Washington DC regarding the fee disclosure of retirement plans. Plan fees have been hidden behind basis points and percentages, or maybe behind the excuse that ‘it’s always been done this way’.
Today the industry still uses the same pricing scheme that it was using in the 1980s, and this scheme is very complicated and hard to explain to the archetypal lay man in the street.

People who work in the retirement industry say that calculating effectively the 401k plan fees would be expensive, with the present pricing method. This cost would obviously be passed to the contributors. They also add that the pricing structure is difficult to explain. This is very true, and this is probably the reason why exact charges are never quoted anywhere.

Fee estimates won’t satisfy people who are used to being accurate and precise. Consumers should be shown exactly how much their plan is costing, and what gains they are making on the money they are paying. People will choose a fund that suits them most, and will not necessarily go for the cheapest. Some employees may assume that the more expensive fund will provide the greatest return. Testing should be done to understand better how people react.

This industry is full of intelligent people, who can easily come up with a simpler charge structure for the lay man in the street to understand without difficulty. All service industries in the US have a simple and clear pricing system, so why not the retirement industry? What we need is a strong retirement industry, and clear information is the only way forward.

Reference: http://www.401khelpcenter.com/ackley_fees.html