There is mail that’s exciting to get: an invitation to a girlfriend’s party, a note from a young relative telling you about the latest excitement in her life. There is mail that is disheartening to get: bills that arrive too quickly, notices from the IRS. And then there is mail that is just plain boring: a catalog from a store you have absolutely no interest in, coupons to a shopping center three-hours away, retirement plan updates.
Girlfriend guru and financial wiz MIATA EDOGA tells us not to immediately toss all that boring retirement stuff in the recycling bin. At least not right away. Turns out, there is important information in those envelopes.
If you’re like me, you receive what feels like 1,000 pieces of unreadable legalese from your retirement plan provider each year. While it’d be easy to give the evil eye to the pencil pushers who create these tomes that end up in the recycle bin, it largely isn’t their fault. A myriad of laws and class action lawsuits designed to protect us from making bad investments have created one of the world’s worst paper nightmares.
Now it’s going to get worse.
According to the US Department of Labor, companies must comply with a new law in which they have to disclose the fees inside of your retirement plan by August 30th. We just received one of these reports in the mail yesterday, and shockingly, it was pretty readable.
Most people look at long-term performance, but remember that past performance doesn’t equal future results. Managers age, fund companies change tactics, and financial markets shift. The one constant? Fees. Before anything else, watch what you’re paying.
Here’s what you should look for in the new 401k fee disclosure report:
1) How much is the fund manager charging? Good mutual funds will charge less than 1% of the amount they’re managing. Often this number is lower than 0.5%. The only exception to this rule is international funds, which can sometimes run to 2% because of the additional costs associated with international trading.
2) How large are the administrative fees? Some plans charge a fee to participants in the plan. Others, while seeming to be “free,” pile on the fund manager expenses and enter/exit costs.
3) What are the fees to enter and exit the plan? Is there a charge assessed when I put money into my 401k? Is there a charge when I take it out? Are there loan processing fees? These should also be disclosed in the document.
What if I don’t like the fee structure?
The bad news first: You’re limited in your 401k plan to the choices provided by your employer, so you can choose the lowest cost options available.
The good news: many employees are able to help the company change investment directions by pointing out their displeasure with a high-cost 401k plan. Talk to your plan administrator with feedback about your plan. You just might be able to help lower costs for everyone in your company.
MIATA EDOGA is the President and Founder of Abundance Bound, a 10-year old company committed to utilizing humor, inspiration, and lots of love to give individuals around the world the necessary tools to thrive financially, while keeping focus on the things they treasure most. Visit the Abundance Bound Facebook Page for your free copy of Financial Success for the Creative Soul!
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