More and more employees are investing in their futures through 401(k) plans. Employees who participate
in 401(k) plans assume responsibility for their retirement income by contributing part of their salary and, in
many instances, by directing their own investments.
In a 401(k) plan, your account balance will determine the amount of retirement income you will receive
from the plan. While contributions to your account and the earnings on your investments will increase your
retirement income, fees and expenses paid by your plan may substantially reduce the growth in your
account. The following example demonstrates how fees and expenses can impact your account.
Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of
$25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and
expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at
retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent,
however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses
would reduce your account balance at retirement by 28 percent.
In recent years, there has been a dramatic increase in the number of investment options typically offered
under 401(k) plans as well as the level and types of services provided to participants. These changes give
today’s employees who direct their 401(k) investments greater opportunity than ever before to affect their
retirement savings. As a participant you may welcome the variety of investment alternatives and the
additional services, but you may not be aware of their cost. As shown above, the cumulative effect of the
fees and expenses on your retirement savings can be substantial.
401(k) plan fees and expenses generally fall into three categories:
Plan Administration Fees -
The day-to-day operation of a 401(k) plan involves expenses for basic
administrative services -- such as plan record keeping, accounting, legal and trustee services -- that are
necessary for administering the plan as a whole. Today a 401(k) plan also may offer a host of additional
services, such as telephone voice response systems, access to a customer service representative, educational
seminars, retirement planning software, investment advice, electronic access to plan information, daily
valuation and on-line transactions.
In some instances, the costs of administrative services will be covered by investment fees that are deducted