There are two big points in a recent article in Kiplinger.com on the topic of hidden 401k fees. The first is the issue of “revenue sharing” between a 401k fund choice and the 401k’s plan administrators. Apparently what happens is that large investment companies are essentially offering a “kickback” to a plan administrator if they recommend the use of their funds.
Last fall, insurance giant ING settled, without admitting wrongdoing, an investigation by New York Attorney General Eliot Spitzer into payments to a New York teachers union to endorse and promote ING annuities in the union’s retirement savings plan. ING will now disclose costs to plan investors and also explain that mutual fund managers often pay ING to have their funds appear on the menu of options offered to investors.
Before you ask what the big problem is, take a look at your fund options. It’s not like you have the ability to pick any mutual fund out there on the market, chances are you are limited in what you’re allowed to pick. Even if you are given that option, if your plan administrator offers you a more expensive option (unbeknownst to you), there is a certain segment of your fellow workers who will just take that recommendation at face value. Either way, it’s wrong.
Certainly the more savvy retirement population is going to pore through the prospectus and figure out what you’re getting for the money, but for everyone else, they’re getting bilked.