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KAI RYSSDAL: More than 50 million workers in this country currently have 401(k) plans. Altogether, they’ve set aside $3 trillion for retirement, but unbeknownst to most of them, some of those 401(k)s could be losing money — besides in the stock market. I mean through hidden fees and conflicts of interest. The Labor Department’s proposed some new rules on disclosure. The public comment period on them closes tomorrow.
Tess Vigeland hosts our personal finance program, Marketplace Money. Today she wraps up our coverage of those buried 401(k) fees, with a look at what you’re allowed to know right now.
TESS VIGELAND: Mitch Aldrich is big on saving for retirement. Lucky for him the radiology firm he works for in Minnetonka, Minnesota sponsors 401(k) accounts for all of its employees, and Aldrich funnels 25 percent of his salary into that plan.
MITCH ALDRICH: Anything else guys? Excellent. Happy Monday.
His day job is to make sure the company’s technology is up to date and working.
ALDRICH: You may already have this, but this is the first quarter technology priorities.
But for all his high-tech and management wisdom, Aldrich can’t figure out the answer to this one question.
ALDRICH: How much of my money is being withdrawn every month, or every quarter, or every year for the management of the account, and is it a reasonable amount?
He knows about expense ratios for each of the mutual funds in his 401(k), and he knows he pays a quarterly administration fee, but he suspects there’s a little more to it.
ALDRICH: I couldn’t find any numbers that made any sense to me. I spent probably an afternoon searching and I sent a few emails, and then I finally just gave up.
And for good reason. Even the experts have a tough time figuring out the math. Matthew Hutcheson is a pension consultant in Portland, Oregon.
MATTHEW HUTCHESON: I performed an analysis a few months ago and it took me several days of looking through many hundreds of pages of documents and contracts and so forth of a company who had 10 or 15 funds. A normal participant wouldn’t know where to look.
Hutcheson has testified on Capitol Hill to support full disclosure of 401(k) fees. He and others, including several members of Congress, believe if people knew more about the fees they’d put more pressure on fund companies to keep costs down. The 401(k) industry does support better fee disclosure, but wonders how much detail is really necessary.
David Wray heads up the Profit Sharing / 401k Council of America.
DAVID WRAY: It’s like a person who buys a car. They want to know what the price of the car is. They don’t want to know what the price of the engine is, what the price of the front door handle is. What they want to know is what’s the total cost.
Wray supports the idea of a simple spreadsheet so that 401(k) participants won’t have to dig through the prospectus of each mutual fund they own, but he says the industry is concerned that employees could be so overwhelmed by fee disclosures that they simply stop investing.
WRAY: We don’t want to give them information that they can’t handle. I mean we can barely explain what a stock and a bond is to a participant, and to explain how all these fee structures work to them I think is really beyond the system.
Hutcheson thinks the industry isn’t giving investors enough credit. After all, he says, they already have to pick individual mutual funds on their own.
HUTCHESON: When the FDA required food companies to disclose nutritional information on the back of food packages, did you become overwhelmed and stop eating?
Back in Minnetonka, Mitch Aldrich admits he doesn’t want to sift through pages and pages of fee information.
ALDRICH: But what I think people will care about is the bottom line. What’s the actual dollar amount that I’m essentially losing each year and how that compounds.
It may be a long time before he’s able to figure that out. A Department of Labor proposal would force 401(k) fund managers to give more details to employers, but employees still have to do their own digging, and as Mitch Aldrich has learned, it takes a lot of fancy spadework to unearth the full extent of those fees.
In Los Angeles, I’m Tess Vigeland for Marketplace.
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