401k Revenue Sharing Controversy

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.







3 responses to “401k Revenue Sharing Controversy”

  1. […] Over at My Retirement Blog, I take a look at a Kiplinger’s article about how your 401k plan administrators may be getting a kickback to offer certain funds. […]

  2. We noticed an issue of unduly large fees in my husband’s 401(k) plan — the list of funds was extremely short and most were “load” funds. He works with people who are hourly employees and every dollar they were putting away was literally being reduced by 4.75% in most of these funds. In addition, the expenses for the funds were up to about 2% and the management company recommending the funds was making .85%. To make matters worse, the fees were not disclosed at all; they were just “lousy” investments. We kept wondering why his plan was doing so badly, but we didn’t start investigating until I learned a lot more about the issue of fees and expenses. Well, even his employers were outraged and a whole change is in the works. Meanwhile, some of our greatest savings years were really not as valuable as they could have been. It’s so frustrating to work so hard and have someone essentially steal your money. To make matters worse, my husband says that when the funds were picked, he was sure he was told they were all no-load, low expense funds. Ignorance in this case was not bliss.

    By the way, the way we figured it out was by going on the website. It had a whole different format for the way the statement was created.

    And, I hate to say it, but it probably was in our fund prospectus or something, but I certainly couldn’t wade through them (now I do).

    In all matters about which we have a choice (IRA and my 403(b)), we use Vanguard — almost all of their funds are highly rated, I had an old fund that, left alone, grew nicely, and their expenses are generally quite low compared with others.

  3. Carnival Of Investing # 57 is UP!!!…

    PS : First of all, I would like say sorry for the late posting for this week?s Carnival of Investing due to the internet connection problem with my PC. But now everything is clear.

    Below is the submission for this week:

    What Increases Your Home&…