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Trying to keep 401(k) plan costs down is a major focus of our work at Employee Fiduciary. Our job is to get your savings invested in the market efficiently – think of us as a pipeline to the market. The less leakage in that pipeline, the better for participants.
I was glad to see PBS air a Frontline program on the problems with 401(k)s. “The Retirement Gamble” addressed the real and growing problem that Americans are woefully unprepared to retire due to confusion, misinformation and just plain ignorance about financial matters. As a fan of John Bogle and Vanguard investments, I was especially pleased to see his inclusion in the program. (If you don’t have time to watch the archived program, read the transcript of Frontline’s interview with Bogle. A video of the piece is also embedded at the end of this post.)
While Bogle had many common sense insights to share, it’s fair to say he is passionate about keeping 401(k) costs down:
“Costs are a crucial part of the equation. It doesn’t take a genius to know that the bigger the profit of the management company, the smaller the profit investors get. The money managers always want more and that’s natural enough in most businesses, but it’s not right for this business.”
I think retirement investors can agree with his sentiment and I know Employee Fiduciary clients do. Let’s take a quick look at the costs in most 401(k) plans. This list is hardly exhaustive, but it does cover much of what you might uncover when digging into the fine print of your own plan:
- asset management fees
- marketing or affinity fees
- administrative fees
- trading fees
- recordkeeping fees
- termination fees
These are a lot of fees! So how can you keep 401(k) plan costs down when setting up or converting your small business’ retirement plan? Mr. Bogle:
“Get Wall Street out of the equation. Get trading out of the equation. Get management fees out of the equation. You own American business and you hold it forever - that’s what indexing is. Own a fund that owns the entire American stock market, does no trading and has a cost of 1% a year to own - that is the only way to do it. Then you are a creature of the market and not of the casino.”
Clients of Employee Fiduciary agree. Time and time again, our customers come to us having done their research and they request low cost investments like index funds. Because these funds have no active management, they save investors thousands of dollars over the course of their investment life by avoiding fees that do nothing but chip away at their hard-earned nest egg.
Drop me a note in the comments below and let me know if you saw Frontline and what you thought of the show.
