The Structure of 401(k) Fees

Increasingly, people are depending on 401(k) and similar defined contribution plans sponsored by their employers for their retirement income. As a result, participants in these plans also are paying more of their plans’ costs, ranging from administration and sales expenses to the cost of managing investments. These costs can take a substantial toll on retirement savings. Over a 30-year career, for example, paying an annual fee of 50 basis points can reduce the purchasing power of savings at the time of retirement by one-eighth. Employers who sponsor 401(k) plans have a fiduciary responsibility to ensure their plans’ fees are reasonable and communicated to participants. Recently, the Government Accountability Office reported that participants need more information and sponsors need to disclose this information more effectively to fulfill this responsibility. The Department of Labor is revising regulations to require sponsors to report the fees of their plans more clearly to their employees. Congress also has been holding hearings, inquiring if greater disclosure would help reduce costs within 401(k) plans...