Five years ago, the Los Angeles Times investigated retirement plan fees and found that participants were getting nickeled and dimed out of as much as 20% of their investment returns by fees that were largely hidden from view. One participant who managed to ferret out the fees he was paying, estimated that the overcharges to his account would cost him some $300,000 over his working career.
Worse, the companies that sponsor the plans and are supposed to ensure that their workers are getting a good deal, were also often unaware of the price they were paying -- and how deeply that cost ate into worker's savings. The series of three LA Times stories explained how workers were getting eaten alive by 401(k) fees; how seniors were tricked into buying toxic financial products; and how teachers' unions were being paid off to promote high-cost retirement products to their members.
The ensuing bruhaha sparked Congressional hearings and led Congressman George Miller (D-California) to propose legislation that would demand disclosure of 401(k) fees and ensure that every employee got the chance to invest in a low-cost index fund if they wanted to. Not surprisingly, investment companies have been fighting the legislation ever since, but Miller has relentlessly pursued having the provisions added to related bills.
The latest volley in this battle came this week, some four years after it started. Miller's 401(k) disclosures had been included in the recently passed the American Jobs and Closing Tax Loopholes Act, but Senator Max Baucus, (D-Montana) pulled the provisions out of the legislation in the Senate.
A spokesman from the Senate Finance Committee failed to return my calls to explain why, but Baucus was quoted in a recent Congressional Quarterly article as saying that there were "objections" and the issue had "not been fully vetted."
In the meantime, you and I are forced to play complex mathematical games just to figure out how much we're getting nicked by 401(k) plan fees. When I last checked the amount I was paying, I was able to determine the full cost only because I had stopped contributing to the plan. For everyone else, figuring the cost is insanely complex.
Companies such as BrightScope and Fiduciary Benchmarks attempt to calculate the fees, in an effort to at least educate 401(k) sponsors (read that as "your employer") about high-cost, poorly designed plans. But as the comments in their ratings can show, the information these companies get is sometimes dated and inaccurate.
At a time when most Americans' retirement security relies on their own savings -- largely through 401(k) plans -- it seems high time to stop "vetting" and start disclosing how much we're paying to retirement plan providers. How about it, Max?