Hidden Fees Cost Retirees – 401k Reform Likely Now Democrats Control Congress – Republicans Say More Information Confusing

Hidden Fees Cost Retirees – 401k Reform Likely Now Democrats Control Congress – Republicans Say More Information Confusing

George Miller

(Best Syndication) Lawmakers are looking into whether rules for managers of 401k accounts should be changed after lawmakers heard from pension experts on Capital Hill. The evidence presented to the House Education and Labor Committee on Tuesday suggests that hidden fees take a significant bite out of workers' retirement savings account balances, often without the workers' knowledge.

Committee Chairman U.S. Representative George Miller (Dem-Calif.) said “Today, the average 401-k account balance among private sector workers is just $28,000. That would help retirees get through a year or two of retirement – but certainly not an entire retirement.”

In his opening statements Miller said that Social Security was not meant to be the primary source of income for the retired. “That’s why it’s critical for us to examine two things: how we can best revitalize traditional pensions; and how we can make sure that workers with 401(k)s are getting the best bang for their buck.”

These charges are no small matter either. According to Stephen Butler, who testified before the committee, "Excessive fees, just over the past twenty years, have reduced participant account balances by an average of 15 percent." Butler is President of Pension Dynamics Corporation. He went on to say that "On a projected basis, excessive fees charged to participants will have reduced retirement 'nest-eggs' by 20 percent, according to a wide variety of organizations conducting research on the subject."

Just one percent can make a big difference. Barbara Bovbjerg at the Government Accountability Office (GAO) used 45 year old employee with 20 years until retirement as an example. “If the average annual net return is 6.5 percent-a 7 percent investment return minus a 0.5 percent charge for fees-the $20,000 will grow to about $70,500 at retirement.”

But what if he is charged one percent more? Bovbjerg, who is the Director of Education, Workforce, and Income Security Issues at the GAO says “if fees are instead 1.5 percent annually, the average net return is reduced to 5.5 percent, and the $20,000 will grow to only about $58,400. The additional 1 percent annual charge for fees would reduce the account balance at retirement by about 17 percent."

According to AP business writer, Marcy Gordon, “Under current law, the fees must be fully disclosed to those at companies who decide on 401(k) plans, but not to investors themselves.” The Democrats in Congress will likely pass legislation that will make it easier for employees to compare plans. Gordon says that current law does not require “disclosure to investors of comprehensive information on fees connected with 401(k) plans.”

But Republicans complain that new rules would hurt the program managers.
The senior Republican on the committee, Howard Buck McKeon of California, warned against congressional action. Buck believes new requirements could overwhelm investors with data.

See what others are saying and join the discussion at our Forum

By Dan Wilson
Best Syndication Writer

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