5 Common 401(k) Abuses
06/28/2011 0 comments
Reuters' John Wasik published an article 401(k) rip-offs: How to protect yourself that details 5 most common abuses in your work place retirement plans:
- Charging exorbitant expense ratios. You should get a discount on the funds within a 401(k) plan, especially in large plans where there are economies of scale. Are you getting an institutional rate? Has your plan administrator considered low-cost exchange-traded funds?
- Group Annuity Plans. These are among the most expensive plans with up to four layers of fees, all of which deplete your wealth. They are rarely a good deal for you, but enrich brokers, agents and middlemen.
- Expensive Share Classes. With broker-sold products, the difference in the share class can add up. It’s generally a bad idea to buy a plan through a broker or agent — unless they add value. Ask for the cheapest share class or buy directly from the fund manager.
- Fees on “sub-advised accounts” or “collective investment trusts.” Your plan sponsor may have brand-name mutual funds that seem to have low expenses, but you may be secretly nailed with additional fees that can only be found by sifting through plan documents.
- Wrap Fees. These are unnecessary expenses that are larded on by middlemen. Also look for “third-party administrator” fees.
A comment in the article put the problems in 401K plans elegantly:
I consider 401k’s to be the “Madoff scandal of the average person”. It’s a shame that small business, i call them our “economic patriots” — are the people that suffer the most.
We encourage you to speak out, work with your employers and plan sponsors.
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