401(k) Fee Disclosure Bill

April 23rd, 2009  |  Published in 401K  |  Comments Off on 401(k) Fee Disclosure Bill

This week the House Education & Labor Committee introduced the Fair Disclosure for Retirement Security Act of 2009, a bill that would require your 401(k) plan to clearly state all fees that it charged. Currently, the law doesn’t require your plan administrator to disclose all the fees and it’s often very difficult to find this information.

The bill requires 401(k) plans to include all fees in “basic investment information,” as it would disclosures on risks, returns, and investment objectives. The fees would include but not be limited to administrative fees, investment management fees, and transaction fees.

Plans would also be required to offer on low-cost index fund and disclose any financial relationships so that the company can determine if there are conflicts of interest.

How To Buy Annuities

March 16th, 2009  |  Published in Retirement  |  2 Comments

Annuities aren’t all bad. They get a bad reputation because some of them charge high fees and are bad investments, but the idea behind an annuity isn’t bad at all. For many, it’s a way to turn retirement savings into a constant and reliable stream of monthly income similar to a pension, so that you can plan your finances more easily. The big key to watch out for when it comes to annuities are those fees – between the administrative, mortality and expense, and other fees, you could pay through the nose if you’re not careful.

Types of Annuities

There are several types of annuities. Fixed annuities will offer a fixed rate of return and variable annuities will offer a variable rate of return based on the investments in the annuity’s portfolio. Equity-indexed annuities offer a mix of both, you get a minimum fixed rate plus a variable rate based on that stock index (though the rate will be capped at less than the index’s return). In addition to the fixed and variable aspect, there’s a deferred version (and immediate version) of both. Deferred means you’re putting off the earnings until the future, whereas immediate means you’re getting a monthly cash flow today.

In addition to the deferred/immediate aspect and the fixed/variable/indexed aspect, there are add-ons you can get that will cost you even more. It’s like selecting the flavor of your ice cream and then picking the toppings afterwards.


On their own, annuities aren’t bad ideas, it’s only if you get one with big fees. Annuities will always charge an annual management fee, which according to Morningstar will average 2.37%, though you can find low cost alternatives at firms like Vanguard. In addition to annual fees, you may have a surrender fee if you sell your annuity in the first year or two. Finally, there is also a “mortality and expense” fee that pays for the insurance part of your annuity, commissions, administrative expenses, etc. The average M&E charge is 1.15% according to the National Association of Variable Annuities (NAVA).

If you keep an eye out for the fees and understand what you’re buying, annuities aren’t dangerous at all.

10 Rules: Watch the Watcher’s Prices

December 26th, 2006  |  Published in Mutual Funds  |  Comments Off on 10 Rules: Watch the Watcher’s Prices

A mutual fund usually has an expense ratio, that is, a percentage of its assets that it collects for administrative fees and “expertise.” The actively managed funds generally have higher fees because you’re paying the manager to be good at his job. Passively managed funds generally have lower fees because you’re basically paying for the administrative fees. Just as you should know how much that sweater or that cup of coffee costs, you should know how much you’re paying your brokerage for your funds because it adds up in the long run. Forbes’ eighth tip in their ten rules series is that you should keep an eye on the fund fees.

When you review the fees, it will be broken up into administrative and management fees. Forbes recommends not getting a fund with a management fee greater than 1%. Here is where the ten rules start to confuse me… if Forbes recommends that you should not try to beat the market and that you should avoid high fees, why don’t they just come out and say that you should invest in index funds? Those funds match the market perfectly and they usually have incredibly low fees.

Source: Fortune