, April 24, 2012 10:41 am
So I was reviewing a client’s Verizon 401(k) last week (all the paperwork was shoved in a file for my perusal) and came across a letter regarding changes to the plan. Effective as of the market close on May 16, 2012, Fidelity Investments is lowering the fees on three of its funds in the 401(k). The employees’ money in these funds will be transferred to a new “K share” for each fund…K shares are for Fidelity’s 401(k) market. Lower fees are good, right? Yes, but apparently the fees are not the same for all employer 401(k) plans which I find a little odd.
Not long before May 4, 2008, Fidelity filed a Registration Statement Under the Securities Act of 1933 with the Securities and Exchange Commission for Class K shares of one of its mutual funds. The fund “fees and expenses that may be incurred when you buy, hold, or sell Class K shares of the fund”…were listed as being .41%. That’s quite reasonable, in my opinion. Yet, when I looked at my client’s letter regarding K Shares, the expenses for this same fund were dropping to .46%. The previous expenses had been .60%. That’s quite a drop. Yet, after Googling “K shares”, I find an article (effective 1/10/09) about how Fidelity announced new K Shares expenses for five funds in the Indiana University Retirement Plan. Out in the Hoosier State, the same K Share expenses were dropping to .61%…down from a whopping .73%.
So, to review: Verizon 401(k) expenses for this popular and famous fun (for New York and New England employees) are at .46% and university employees in Indiana are paying .61%. That may not sound like much, but expenses add up. Higher expenses mean lower account balances for participants. For a $50,000 account, that .15 difference in expenses would add up to a $1,500 difference in theaccount balance, assuming the $50,000 remained static for 20 years. But you get my point. Why are the Midwesterners paying more? And how many OTHER 401(k) plans are paying higher fees? I can assure you the fund in question isn’t what it was back in the ’80s under the direction of Peter Lynch.
There ARE new rules coming to 401(k) fees very soon. I urge you to pay attention to the fees that you’re paying and don’t be shy about expressing your displeasure to your employer if the fees you’re paying are more than, say, .65%. If your employer hears from enough people, that may be enough to get a better 401(k) plan in place for you and your co-workers. It’s your money. Keep an eye on it! Until next time, here’s to good planning!