The most unsettling issue I encounter with 401(k), 403(b) & 457(b) participants is a misplaced belief that your employer is watching the fees. Based on my experience, 99 out of 100 employers have zero understanding of the fees in the very plan they signed you up for. They did sign you up, right? It’s not as if they gave you a list of retirement plans and let you choose. It was more like “here’s our plan, take it.” That’s how the system works. One person essentially decides for everyone at your job where you get to save your retirement dollars.
Employer are responsible for ensuring you pay only reasonable fees, but how do they take responsibility and solve a problem you can’t even see? After all, the fees are invisible. Your money is gone long before you pull out your smartphone to check your balance, and they don’t even leave you a note. Is it any wonder that a large swath of people in workplace retirement plans do not even know that they pay fees? The average participant fee in small business 401k plans across the United States is a whopping 4%. What employer would agree to 4% if they had any idea what they were signing themselves up for? This begs the question. If your employer doesn’t know what the fees are and nobody is even questioning the fees, then who’s watching out for you?
Another challenge facing employers and employees is an underestimation of how negatively you are impacted by high fees. Every dollar you overpay in fees is a dollar that haunts you forever. That’s because you not only lose the dollar. You also lose the future compounding interest on that dollar for the rest of your life. Imagine the ripple that a pebble makes when you toss it into a lake. Now image a ripple that doesn’t stop after a second or two. Imagine a ripple that goes on forever. That is compounding interest. That is why fees matter.
Employers simply cannot be expected to solve this problem on their own. They need help and it needs to come from their employees. In my new book 401 CONFIDENTIAL I teach employees how to take the lead at their workplace in assessing their retirement plan fees and determining if they are ultra low, reasonably low, or “it’s time to move our plan to another company.” I then teach them how to work with management to secure lower 401(k), 403(b) or 457(b) fees for everyone in the organization.