In an AARP survey released today, more than eight in ten (83 percent) 401(k) plan participants were found to not know how much they pay in fees and expenses associated with their plan. The survey, "401(k) Participants' Awareness and Understanding of Fees," also found that more than half of 401(k) plan participants do not feel knowledgeable about the impact that fees can have on their retirement savings.
"With Americans more responsible than ever for making better choices to secure their financial futures, financial literacy and an understanding about those decisions is increasingly important," said David Certner, Legislative Counsel and Policy Director for AARP. "Consumers need to get more informed and ask questions. In return, plan administrators are going to have to be more transparent and make the necessary information about 401(k)s readily available to plan participants."
Plan participants often find the investment choices their plans offer, as well as the fees and expenses associated with them, incomplete and confusing. 401(k) plans typically include three types of fees: investment fees, administrative fees and individual fees. These fees can cover the management of investments to operational expenses to optional individual services and can significantly deplete one's nest egg. Little known to consumers, various fees -- that can typically account for as much as 0.75 percent a year, according to a Deloitte survey - can reduce retirement savings by about 15 percent after 20 years.
When considering any 401(k) plan, AARP offers the following tips:
- Do Your Homework - Ask the administrator of your plan about any fees associated with specific choices. Compare the fees of various funds in a class and look for those with lower expense ratios.
- Talk To Your Human Resources Representative - If you find that your plan contains high-cost funds, ask HR to review the fund offerings and consider switching to those with lower costs.
- Make Saving a Priority - Focus on saving, not spending your retirement savings. Individual fees from loans, wire transfers and hardship withdrawals can significantly deplete your retirement savings.
- Consider No-Load Mutual Funds - Most plans offer several mutual funds to choose from. Select no-load funds since they don't charge a sales commission.
- Consider Index Funds - Index funds are composed of stocks that mirror a particular stock index, such as the S&P; 500. These funds tend to outperform the average fund, and generally have lower fees due to less trading and need for portfolio management.
AARP continues to advocate for legislative and regulatory changes to lower 401(k) fees and promote transparency so that consumers have all the information necessary to make smart financial decisions.
In comments submitted to Employee Benefits Security Administration (EBSA) on July 24, 2007, AARP urged the EBSA to draft regulations requiring plan administrators to provide comprehensive, readable disclosures on plan investments, fees and expenses to all 401(k) participants when they enroll in the plan and periodically thereafter.
Recently, Congressman George Miller introduced the 401(k) Fair Disclosure for Retirement Security Act of 2007. The act would require transparency and disclosure of fees, but also promote investment education so that workers can make the best decision for their situation. This legislative proposal reflects the growing need for legislation that will put Americans on the right track toward long-term financial security.
For more tips and resources for learning about 401(k) fees visit www.aarp.org or to view the full text of the survey, click here.
AARP is a nonprofit, nonpartisan membership organization that helps people 50+ have independence, choice and control in ways that are beneficial and affordable to them and society as a whole. AARP does not endorse candidates for public office or make contributions to either political campaigns or candidates. We produce AARP The Magazine, published bimonthly; AARP Bulletin, our monthly newspaper; AARP Segunda Juventud, our bimonthly magazine in Spanish and English; NRTA Live & Learn, our quarterly newsletter for 50 + educators; and our website, www.aarp.org. AARP Foundation is an affiliated charity that provides security, protection, and empowerment to older persons in need with support from thousands of volunteers, donors, and sponsors. We have staffed offices in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.