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The Furor About 401(k) Fees Put Into Perspective

Posted on Jul 02, 2012 by  in In the News, Retirement Readiness

There has been a lot of commentary about how 401(k) fees are eating us alive and how “401(k) plans are a better deal for Wall Street than for you.”  It’s time for us to comment on all this and put it into some perspective.  The focus is entirely on fees, which does not tell the whole story.  These fees are paying for services, valuable services without which most people would have little or nothing in retirement assets. 

The latest article drags up the Demos study, which has been pretty well discredited by people who really understand how this field works: the Plan Sponsor Council of America (PSCA), Fiduciary News (this one has deeper analysis of the study and links to numerous articles that reveal the hysteria that existed as much as a month ago), and the American Society of Pension Professionals and Actuaries (ASPPA) (this one also goes into depth analyzing the faults of the study).

We all pay fees for a host of things, many of which are a lot less important than our retirement savings, without giving it much thought: data fees for our mobile phones (for which studies suggest many of us are overpaying), cable TV fees, ATM fees, credit card fees, etc., all for our convenience and entertainment.

Without 401(k) plans, the trillions of dollars that have been accumulated for hundreds of thousands of Americans for their retirement would not be there at all.  It is certain that most of those people would not have had the consistent discipline to save outside of their employment and the money would have been frittered away.  Furthermore, personal investing is not without expense; even if you were disciplined enough to save personally, you will pay fees and commissions on stock transactions and if you invested in retail mutual funds fees apply to those, as well.  The bottom line is that nothing is free, and convenience also costs money.  In the case of 401(k) plans, the money is well spent if it means you did, in fact, accumulate retirement assets

No one is saying that we should ignore fees, and it is wise to be aware of what you are paying.  Indeed, the added scrutiny may reduce fees for some who are paying more than they should, but as Brian Graff, CEO and Executive Director of ASPPA, so eloquently said: “The tragedy of misinformation is that it may discourage consumers from saving, which is the last thing this country needs.”

Articles decrying the faults of 401(k) plans and how we are all getting ripped off make for good copy and sell advertising.  Unfortunately the good articles are buried in relatively obscure trade publications and professional journals.  It would be great to see in the major publications balanced reporting that educates readers without alarming them.

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