Makin' Money

What are high fees costing you?

Chris Farrell Jun 19, 2012

A theme of these blog posts is that fees matter when it comes to investment returns. For instance, low fees are a major reason for the sterling record of index funds compared to actively managed mutual funds. More than 60 percent of the assets in the S&P 500 index funds have expense ratios of 0.10 percent or less, according to the Investment Company Institute, an industry trade group. The median expense ratio for all equity funds is around 1.4 percent.

Sad to say, I don’t think enough employers have paid close enough attention to the impact of fees on their plan participants. Instead, the focus has been on adding additional investment options.

Here’s the thing: No one knows how the markets will do over the next 35 years — let alone the next year. Yet by negotiating for razor-thin fees for their employee retirement plans, employers can boost the odds of their employees doing decently in a well-diversified portfolio relative to the market’s performance.

The good news is that employers and employees will be more aware of fees when the new retirement savings plan disclosure rules come into effect in July. The rules are intended to make fees more transparent. The hope is that employers will feel pressure to shop around for a better deal. I think it’s a realistic goal.

You can use this calculator to determine what high 401(k), 457, or 403(b) fees might be costing you. 

Thanks to Ted Leber for the pointer.

Marketplace is on a mission.

We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.

Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?

Your donation is critical to the future of public service journalism. Support our work today – for as little as $5 – and help us keep making people smarter.