Shedding light begins to lower 401(k) costs
Since late 2012, 401(k) plan providers have been required to send you a new statement disclosing fees.
Didn't read yours? That may not matter. Some other sharp-eyed folks have been looking. Lawyers are sending employers with pricey plans warnings about possible lawsuits; competing plan providers may be using the info to prepare lower-cost bids. Plan costs are coming down as a result, says Brian Graff of the American Society for Pension Professionals and Actuaries.
The median 401(k) plan is paying just 53¢ in annual fees per $100 in assets, according to consultancy NEPC, down from 55¢ last year. Record-keeping costs fell $12 per employee. It's a step in the right direction.
Best new reason to switch funds
1% costs 20%. Maybe a 1.1% fee on a mutual fund doesn't sound so costly. In an article published in the spring, however, Nobel Prize-winning economist William Sharpe devised a new way to show how fees add up over 30 years of savings.
The sobering truth. Sharpe ran simulated returns for a hypothetical actively managed fund charging 1.1% and an index fund with fees under 0.1%. Half the time, he found, the index fund would have produced at least 20% more wealth to tap during retirement.