401(k) Fees Can Shave Thousands From Nest Egg

Millions of Americans save for retirement by using 401(k) accounts, employer-based retirement plans that help workers put a portion of their salary into mutual funds or other investments.

But most of those plans have fees and hidden expenses. And as personal finance columnist Ron Lieber of The New York Times tells NPR's Linda Wertheimer, those fees can mean that an investor pays more than $1,000 annually.

Lieber provides an example: "Let's say you're paying 1.5 percent of your balance each year toward fees and expenses from your 401(k) account," he says.

Those fees and expenses cover things such as managing the account, record-keeping, and customer service.

"The problem is, if you're losing that much money each year, over time, and you're investing over many decades in these funds, it's a lot of money to be losing each year," Lieber says. "I mean, it's $1,500 out of a $100,000 balance each year."

Those losses add up. Over several decades, an investor could pay more than $100,000 in fees by the time retirement arrives. Federal law says that such fees have to be "reasonable," Lieber says. But most investors have no point of comparison to know where to draw the line.

"A good baseline is that if your plan costs under 1 percent, that's at least halfway decent," Lieber says. "If it's more than that, it's time to start asking questions."

Employees whose company doesn't give them enough no low-fee options in its retirement package should figure out who's responsible for choosing the company's plans, and talk with them "in a polite way," Lieber says.

"You don't want to accuse them of being ignorant," he says. "What you want to say to them is, 'Hey, we're all in this together here. Your retirement's on the line, as well. And right now, we're paying 1.25 percent, or 1.5 percent.'"

To get a better range of plans, Lieber recommends suggesting the company add more low-fee index funds to its options, or putting out a request for bids from managed mutual funds who might be willing to reduce their fees.

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