Why 401(k) Fees Should Bug You More Than Checked-Baggage Fees

Last Updated Jul 14, 2010 10:11 PM EDT




Money magazine recently asked consumers to vote for the fee they most hate. The winner (loser?) was: Airline checked-baggage fees. As for fees charged by your 401(k)? Well, that didn't even make it out of an early qualifying round vote, failing to generate more ire than ATM fees:

Source: Money



The Fee Worth Hating More
I agree checked-bag fees are indeed annoying, but at $30-$40 per roundtrip it's not anywhere in the same league as an expensive 401(k) plan, where paying above-average fees can end up costing you tens of thousands of dollars. When the GAO took a peek at 401(k) fees a few years ago it ginned up an example assuming a $20,000 401(k) balance stays invested for 20 years earning 7 percent. The difference between a low-cost plan (0.50 percent annual expense ratio fee) and a high-cost plan (1.5 percent annual expense ratio) was more than $12,000. (About 600 checked-bag fees.)


I suppose I shouldn't be so annoyed with the lack of 401(k) fee annoyance. As fellow MoneyWatch blogger Kathy Kristof reported, the problem is that in many instances, it's not exactly easy to know what your 401(k) plan charges. Case in point: Less than 30 percent of 401(k) participants recently surveyed by the the Transamerica Center for Retirement Studies say they are even aware that there are any fees for their plan. Amazingly, in the same survey, about 70 percent of the employers running the plans said their employees understand the fees they are paying. Houston we definitely have a problem.

It will be interesting to see what finally comes out of Washington on mandating better 401(k) disclosure. The Department of Labor has some new regs it is ready to roll out, but is waiting to see if Rep. George Miller can make any headway on pushing through legislation that would increase 401(k) disclosure. The latest timetable is for one or the other to be tapped by the end of this month. Stay tuned.