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Figuring Out How Much Your 401(k) Plan Is Costing You

Fees for record keeping, employer education and other administrative services are hard to spot. Begin with a close look at your statement.

By Walter Hamilton

Times Staff Writer

April 23, 2006

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Figuring out what you're paying for your 401(k) isn't easy. Here are some pointers.

Mutual funds, in which most 401(k) money is invested, collect a percentage of your account balance for management fees and operating costs. This charge, called the expense ratio, can be found in fund prospectuses and on many fund-company websites.

In contrast, fees related to the administration of your 401(k) — for record keeping, employee education and other services — are harder to find.

Start by retrieving your most recent quarterly account statement or by logging on to your plan's website.

If you have a printed statement, look for line-item charges under such headings as "record keeping," "administration" or "fees."

Online, the fees may be listed under "investment transactions," "daily activity" or "account history."

They may not appear in dollars and cents. They're often collected by reducing the number of shares you own in your mutual funds.

If you don't see any deductions, contact your employer's benefits department or the outside firm that administers the plan. Ask whether there are overhead costs and where you can find them.

If your 401(k) plan is run by a mutual fund provider, there may not be distinct administrative fees. Fund companies often absorb such costs in return for the chance to stock the plan with their own funds, from which they earn management fees.

If that's the case, review the fund choices closely. Plans sponsored by large employers often qualify for lower-priced institutional funds or institutional share classes of mutual funds. If such options are not offered, ask your employer whether they might be added.

Also, check whether the funds charge 12b-1 fees to cover sales and promotional costs. Switching to funds without 12b-1 fees can boost your returns significantly.

Additional information about your plan can sometimes be gleaned from federal Form 5500, in which employers must disclose certain fees and commissions paid to 401(k) brokers and plan providers.

You can request the form from your employer or view it at no charge at http://www.freeerisa.com , a website run by a benefits research firm.

Ask your employer what services are being provided in return for the fees and commissions and whether costs can be cut.

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How fees add up

401(k) fees can take a big bite out of retirement savings. Two employees who each contribute $5,000 a year and earn 10% annual returns on their investments will have dramatically different nest eggs at retirement if one pays higher administrative fees each year.

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10 years

Plan with 1.2% in annual fees: $79,726

Plan with 2.1% in annual fees: $76,015

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20 years

Plan with 1.2% in annual fees: $271,322

Plan with 2.1% in annual fees: $243,907

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30 years

Plan with 1.2% in annual fees: $731,759

Plan with 2.1% in annual fees: $614,720

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40 years

Plan with 1.2% in annual fees: $1,838,269

Plan with 2.1% in annual fees: $1,433,714

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Sources: Times research, HR Investment Consultants