The Retirement Savings Drain

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The Retirement Savings Drain

 

b y R o b e r t H i l t o n s m i th

The brief simplifies the complex world of 401(k) fees by exposing four major fee categories: administrative, marketing, asset management, and trading. It details the costs of these fees, nearly all of which are borne by employees, and explains why these fees are so high. It ends with our calculations of the real costs of fees to several types of savers, and argues that the inherent inefficiencies of the 401(k) system necessitate a complete overhaul, rather than a tweak, of that system.

• Trading fees:
The costs incurred by the fund when buying and selling the securities (bonds, stocks, etc.) that comprise a mutual fund’s underlying assets.

• Administrative fees:
Fund expenses for keeping records, providing statements, processing transactions, ensuring the plan complies with applicable regulations, answering savers’ questions, and providing customer service.

• Asset management fees:
Salaries for portfolio managers (who oversee different portions of a fund’s assets), investment researchers, and the other employees responsible for fund’s investments.

• Marketing fees:
Also called 12b-1 fees, these include the expense of informing savers and potential savers about the mutual fund, including advertisements, brochures, and other informational material. Increasingly, mutual funds are lumping together a number of other costs under the umbrella of 12b-1 fees, including rebates to 401(k) “recordkeepers”—the companies that bundle
various mutual funds into a 401(k) plan, sell it to employers, and then keep the records for the savers in the 401(k)s.

 Watch this FRONTLINE one hour program that features Robert Hilton Smith – to watch click here.

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May 24, 2013 · Jennifer · No Comments
Tags: , , , , ,  · Posted in: FEES - 401k

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