At a Time of Financial Stress, 401(k) Fees Matter More than Ever

October 13, 2020

Unfortunately, the pandemic continues to rage on, and the economy is under pressure. As a result of this, investors are becoming more and more concerned about the fees that they are paying for the management of their retirement investments. While you should not panic like those who bought loads of toilet paper at the beginning of the pandemic, you should indeed consider the fees of your 401(k) plan. If these are not kept in check, your retirement savings could suffer.

The economic impact of COVID-19 is affecting retirement savers and retirees in several ways. Stock and bonds market returns have dipped, and the market continues to be highly volatile. Other factors that will result in retirement savings being affected in this time include the fact that people may be forced to tap into their 401(k) plans for loans or a withdrawal to stay afloat. Some have also lost their jobs or have been furloughed which will ultimately result in delayed contributions.

In this time, paying attention to fees can mean much more money in your retirement savings in the future. By simply cutting off 0.5% off your fee rate, can make a big difference.

 

How to Reduce 401(k) Fees

The first step to reducing your fees is actually knowing what they are. You can learn this by asking your employer. This information is disclosed by the employer on an annual basis, but they will be able to share with you how much it is costing you personally. Do not feel as if you are out of order to ask about the fees. It is mandated by law that they share with you what is being deducted from your account for administration, record-keeping, legal, and money management expenses.

After you would have learned what your fees are, you must now move on to comparing them. A great tool that you can use to do this is BrightScope. This resource helps you to compare your fees based on the size and total assets of your plan. Another effective tool to use for fee analysis is the Financial Industry Regulatory Authority’s Fund Analyzer.

After analyzing your fees and comparing it with other options, you will need to approach the administrator of your plan. Share with them the work that you have done and what you have discovered. Request that they find lower-cost vendors. Because of how competitive the 401(k) business is, it is fairly easy to find a company with lower fees.

 

A Word of Caution

As we have shared, it is wise to consider your 401(k) fees in this time of financial stress. Many have investigated their fees and have become disturbed by them and have made the decision to take legal action against their employers. While it is your right to do what you want within the bounds of the law, it is not the best option to do this. It is far better to work with your employer in reducing your fees than to take them to court. Settlement often takes a very long time and there is the chance that the case may even be thrown out. 

Rahul Iyer