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Many people who work for larger employers have 401k plans for their retirement savings. 401k plans are a type of defined contribution plans, in which employees choose how much they put into an account each month.
If you have a 401k, you may be paying too much in 401k fees. Some people with 401k plans are complaining that their 401k plans are being mismanaged by employers or plan administrators. This can negatively affect how much money a person has in their account when they retire, or can mean that they are paying too much in 401k fees.
Who may be affected?
This problem has been reported among employees at large companies with over 500 employees. If you live in California and you have a 401k or other retirement plan and you work for a company with more than 500 employees, you may be affected.
How can this be prevented?
The Employee Retirement Income Security Act (ERISA) establishes a standard of minimum requirements for retirement plans, with the aim of protecting the people who participate in the plans.
Some of the requirements include fiduciary responsibilities for plan administrators, meaning that the plan administrator is required to “run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses,” according to the U.S. Department of Labor.
However, some providers may be in violation of these standards, and the people who participate in these plans may have grounds for legal action.
How much should 401k fees be?
401k fees tend to be a percentage of the money in the account, not a flat rate. The Center for American Progress says that on average, 401k fees are around one percent of assets managed. Over the course of their lifetime, a typical American worker who starts working at age 25 could end up paying $138,336 in 401k fees, according to The Motley Fool.
High income workers reportedly could pay around $340,147 over the course of their lifetime because of the fee structures of 401k plans.
Though one percent may not seem like a lot to pay in fees, The Center for American Progress says that “the corrosive effect of high fees in many… retirement accounts forces many Americans to work years longer than necessary or than planned,” as reported by CNBC.
401k fees can mean the difference of thousands of dollars over the course of a lifetime, so they are important factors in a plan. Some people say anything over 2.2 percent is is far too much. In fact, an increase in 401k fees from 1.5 percent can radically reduce the amount a person will have accumulated over the course of their working life.
Are cheaper or more expensive plans better?
More expensive plans supposedly come with more attentive management of funds so theoretically, they should yield better results.
However, research suggests that more expensive funds do not actually yield higher returns for participants. The Motley Fool says that experts suspect that in general, actively managed funds underperform passive broad-market plans that are associated with lower fees. Even when the fees are accounted for, these funds perform better.
How do I find out how much I pay in 401k fees?
Many plans may make an effort to mask the total fees charged. These fees are often broken down into categories of fees, including administration fees, investment fees, and individual service fees. Additionally, fee disclosures are often wordy and complicated — perhaps intentionally so, to confuse participants.
However, you can determine what 401k fees you pay by figuring out your plan’s expense ratio — add together the fees you pay annually, and divide them by the amount in your account.
Join a Free California 401k Class Action Lawsuit Investigation
You may qualify for this 401k class action lawsuit investigation under the following circumstances:
- You live in California;
- You are employed by a company with 500 or more employees;
- You participate in a 401k plan or another pension plan; and/or
- You have been the victim of an ERISA violation such as excessive fees, mismanagement, breach of fiduciary duty, and/or failure to adequately fund.
If you are unsure if you’ve been the victim of any 401k violations, an experienced retirement plan attorney can assist you.
This article is not legal advice. It is presented
for informational purposes only.
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