401k Hidden Fees: What Every Employee Should Know.

By Financial Advisor Peter Egolf | April 29, 2021

Are you aware of the potential fees associated with your 401k plan?

Ever wonder why your investments in your 401K have such high fees? Even a low-cost index fund offered in a 401K plan can have a much higher fee than the same index fund in any personal account (e.g., brokerage, IRA, etc.). Why is that?

401K plans have been a captive source for the financial industry to extract fees from American workers.

Even if you work for a Fortune 500 company, your 401K plan has the potential to underserve your investments. While your employer may match your contributions, they may also be charging employees for the cost of administering the 401K plan and offering high-fee investments. How can you understand your fees and use this information to improve your financial health? Here’s how.

As an employee, it is your right to demand that your employer offer suitable investment options. It is their legal duty to do so, and your retirement hinges on it!

Step 1 - Locate your 401K plan documents, including the list of available investments in your plan. This can most often be found online through your 401K plan portal.

Step 2 - Review the expense ratios (fees) for the list of available investments. If any investment expense ratios are above 0.25%, be aware that these are unnecessarily costly and act as a drag on your returns. It is not uncommon to see expense ratios above 1.0%!

Step 3 - Review your 401K statement (e.g., monthly, quarterly, or annual). Connect the dots between the fees of all the available investments and the investments you have chosen to see if there is the opportunity to lower your fees while still having a properly diversified portfolio.

Step 4 - Search for the words “charge” or “fee” throughout your 401K statement. You may see “Asset Charge, Outsider Provider Charge, Fees.” Each statement is different, but the underlying importance is that these are often unnecessary costs to you.

• Asset Charge – a summary of the investment fees (total expense ratio fee in $)
• Outsider Provider Charge – an extra fee that is charged to you due to the investments funds you have selected
• Administrative Fees – any other potential plan fees that are an expense to employees

At One Day In July, advisors are well-versed in dissecting employer-sponsored retirement plans for fees. We can help you to understand the location and extent of your fees and offer solutions inside your 401K plan and across your accounts to optimize your asset allocations while minimizing fees.

Are you a business owner? Read on to learn about the hidden fees every business owner should be aware of. 401k Hidden Fees - What every business owner should know.