One of my friends passed along a link to this article about retirement plan rip-offs and how most corporate 401(k) plans have unnecessarily high fees that cut into growth.

Roughly 40 million Americans, or two-thirds of the private-sector workforce participating in a retirement plan, have only a 401(k). In 1980 that was the case for only a fifth of workers. Some big companies get competitive bids for their 401(k) business, landing low-cost funds from Fidelity, Vanguard and other vendors. But subpar offerings are a common problem at small companies, where fees often gobble up 2% to 3% of assets each year. For a worker investing in a conservative blend of stocks and bonds, a 2.5% cost wipes out a significant fraction--perhaps half--of the real return that can be expected. "Costs in this industry are way out of line," says Gregory Carpenter, chief executive of Employee Fiduciary, a firm that runs 401(k) plans at a fraction of the usual cost (see box, p. 138).

Small businesses sponsor the majority of the nation's 650,000 401(k) plans; 97% of such plans have assets of less than $10 million. Because of high fees the returns on this country's $2.9 trillion of defined contribution assets lag behind returns on traditional pension plans by one percentage point a year, estimates the Center for Retirement Research at Boston College. That one-point difference equates to $29 billion a year in fees that otherwise might have gone toward retirement savings.

Why don't employers shop around for better deals? Partly because their own money is not at stake. The company may pick up some recordkeeping costs, but the fees on the underlying funds are almost always borne by the workers. "Employers have a legal duty to oversee 401(k)s with the same care they do traditional pensions, but the incentive isn't there because employees bear the brunt of the costs," says Jerome Schlichter, whose firm, Schlichter, Bogard & Denton of St. Louis, is pushing the spate of recent suits.

So be sure to look at the fine print and check out the fees on your retirement funds. Just because they're offered through your company doesn't mean that anyone is looking out for your interests other than yourself.



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