If you've ever become eligible for your employer's 401(k) plan, you know there's a lot of material provided to you. Enrollment forms, disclosures, notices, and general information can easily make you feel overwhelmed. Yet in all of that information, you won't find this chart:
Many 401(k) plans for smaller employers have fees paid by the trust, which means everyone with a balance shares in the fee. These fees are often based on assets, so the more money you save, the more you pay. This is a great benefit for new savers but not so great for the folks who have been saving for a while.
Many participants assume that since they get a matching contribution, there's a positive return on their savings, but that isn't always the case. Your matching contribution should grow with your salary if you keep the same contribution rate. Since your account grows by your deferrals, the matching contributions, and any investment returns, your fees should be expected to grow faster than your matching contributions. Eventually, you may pay more in fees than you get in matching contributions - if you get to this point, your 401(k) isn't a benefit, it's a cost center. Worse yet, you might not have any options to withdraw the money.
This doesn't always happen. Fees vary significantly from plan to plan and so do matching contributions. There's no magic formula here. Because so many fees are indirect, you may not even see them on your statements - they would just decrease your investment returns without you seeing them.
Not sure where to start to see if you're 401(k) is really a benefit? Click below and we'll help you out!