Costs can chip away at 401(k) plans, Try ETFs

401k4April was a scary month for the big dogs in the financial services industry. After decades of the industry hiding the true cost of 401(k) plans, Rep. George Miller, D-Calif., got some movement for H.R. 1984. Otherwise known as the 401(k) Fair Disclosure for Retirement Security Act of 2009, the bill would set new standards for expense disclosure.

April was a scary month for the big dogs in the financial services industry. After decades of the industry hiding the true cost of 401(k) plans, Rep. George Miller, D-Calif., got some movement for H.R. 1984. Otherwise known as the 401(k) Fair Disclosure for Retirement Security Act of 2009, the bill would set new standards for expense disclosure.

In the same month, 60 Minutes correspondent Steve Kroft brought home the devastation the market crash has brought to millions of near-retirees. He also made it clear that many who piously call for improving 401(k) plans are really lobbyists ­— shills for the industry.

The industry thinks things are just fine, thank you.

But they aren’t.

We may focus on the market losses of the last year, but the greater danger isn’t the ups and downs of markets. It is the unrelenting high costs of many plans. As I pointed out in my previous column “Is Your Employer Match Being Wasted?” some plans would require a 50 percent employer match just to overcome the high costs of the plan.

How much should a 401(k) plan cost? Investment manager David Loeper believes that anything over 0.75 percent a year is excessive. Indeed, he calls 0.75 percent the “maximum fair total expense.” In his book Stop the Retirement Rip-Off: How to Avoid Hidden Fees and Keep More of Your Money, (John Wiley & Sons, $20), he shows exactly how much the ongoing rip-off means with a menu of consequences.

Full Story: http://www.chron.com/disp/story.mpl/business/6432424.html

Leave a Reply

Your email address will not be published. Required fields are marked *