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It's been about a year since the U.S. Department of Labor (DOL) required employers to tell their workers how much their 401(k)-type plans were costing them.
Employees have had a chance to look at the numbers, but only a handful have done anything to lower plan costs.
According to a survey by the Employee Benefit Research Institute (EBRI), a Washington-based research group, only 14% who noticed the new fee information -- 7% of all plan participants -- said they made changes to their plan as a result of seeing the disclosure.
Fee disclosure was supposed to be a game changer in bringing down high 401(k) fees.
But only 32% of those who took action moved money out of expensive fund choices. The majority of employees did nothing.
Was there something about the disclosures that didn't register with employees? Was it too hard to understand? Did employees really know if they were being gouged?
Although the DOL required that employers tell their workers how much expenses were eating into their accounts in terms of dollar and percentage amounts, much of that information is provided in a vacuum. How do you know if you're being charged too much? What are other 401(k) plans charging and what's the best expense level for the size of your plan?
Without critical benchmarks that gauge expenses for the size of plans and number of employees, there's no way most employees can make an informed decision unless they do some homework on their own.
The second piece of this puzzle is knowing what to do once you discover that you're being overcharged. Do you talk to your boss? Your HR department? The CEO? In most cases, you need to approach your plan administrators or trustees of the plan to show comparative data.
There's no easy way to do a comparative analysis of your 401(k) plan expenses. You can look up similar plans on Brightscope, a service that monitors and rates 401(k) plans. If your plan is in their database, you have some good background to begin a discussion.
You can also use these numbers for benchmarks: The average stock fund in a 401(k) cost 0.72% annually; the average bond fund 0.52%, according to the consulting firm Deloitte and the Investment Company Institute. Are your funds above or below the average?
While those percentages are slightly lower than the average for non-retirement funds, it's important to know you could do much better -- and boost your returns.
For example, you can own the Schwab Aggregate Bond ETF (SCHZ), an index fund that owns most of the U.S. bond market, for 0.05% annually. The Vanguard
These are the kinds of funds you should be seeing in your plan, so peruse your statements and see how you're faring. If you're being charged too much, gather support among your fellow workers and approach your plan administrator. They have a legal obligation to prudently manage your fund. That means cutting fund and administrative expenses to the bone.
[Update: This article has been modified to reflect that the expense ratio for SCHZ is .05%.]
