There is an old myth that 401(k) plans are “free.” In fact, in a 2011 survey conducted by AARP, 71% of plan participants thought they paid no 401(k) fees. For this reason, expect to hear a collective gasp when investors open their quarterly 401(k) statements in April.
In reality, the fees charged by poorly-managed 401(k) plans can be quite extensive – recordkeeping, fiduciary services, direct or indirect compensation for service providers (not to mention the cost of the actual investments)
This certainly doesn’t suggest that 401(k) plans are poor retirement vehicles. The tax-deferral, automatic contributions, and employer-matching benefits are paramount and should be utilized by nearly everyone with access to a plan. Fortunately, the benefit of the new disclosure laws coming into effect in April is that it forces employers to take more responsibility in ensuring their 401(k) plans offer high-quality investments at a reasonable cost.
Although these new laws have not yet taken effect, they are already beginning to serve their purpose. In preparation for complying with disclosure requirements, many employers are already doing additional due diligence and have discovered that their employees have been paying unjustified and unreasonable fees. Consequently, many employers are already making modifications to their 401k plans, or even changing their 401(k) provider.
Look forward to April 2012. Minimizing investment fees is just as important as obtaining a satisfactory rate of return. Be sure to speak to a fee-only financial planner when you receive your first quarter statement to determine whether your 401(k) plan’s fees are appropriate and to identify responsible actions to be taken.
To learn more about Net Worth Advisory Group visit http://www.networthadvice.com
About Net Worth Advisory Group
Net Worth Advisory Group is a fee-only financial planning firm in Salt Lake City, Utah. They are a member of the National Association of Personal Financial Advisors (NAPFA) and their advisors are Certified Financial Planners. All Net Worth Advisory Group advisors accept a fiduciary responsibility to always act in their client's best interest. Learn more at http://www.networthadvice.com
Visit Net Worth Advisory Group's home page and view their blog at http://networthadvice.com. Their office can be phoned at (801) 566-0740.
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Fee-Only Financial Planner
Net Worth Advisory Group
6975 Union Park Center, Suite 465
Midvale, UT 84047