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Why are 401(k) fees so confusing?

Posted by Andrew Chan  December 29, 2008 03:00 PM

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Why are fees associated with 401k plans so difficult to determine?

In short, it is because of flexibility and the array of financial products available to invest in. As more and more employers shift away from offering defined benefit plans to defined contribution plans (such as 401(k) and 403(b) plans), employers are trying to provide employees with a wide menu of products to choose from. In part, this is to ensure that employees with various personal financial situations have the ability to select investments that best fit their particular situation. While this flexibility is generally a good thing, it does come with a price. In addition to understanding the fees associated with the administration of the overall plan; employees must also understand the fees and expenses for the individual investment products. To further complicate matters, each plan administrator and investment product may have different fees and different ways of charging those fees.

Under the Employee Retirement Income Security Act (ERISA), employers are required to follow certain rules about the administration of 401(k) plans including the plan’s fees and expenses. However, those rules do not specifically dictate what those fees are or how they are charged. The responsibility for determining the fees paid are left to the employer and the employee (through the investments he/she chooses).

According to the US Department of Labor (DOL), fees and expenses associated with a 401(k) plan can generally be grouped into the following three categories:

1) Plan administration fees: These are fees paid for the daily management of the plan including record keeping, accounting, legal, educational seminars, etc.;

2) Investment fees: These are fees associated with the specific investment. For mutual funds this may include transaction costs, loads, sales charges, 12b-1 fees, management fees and commissions. For annuities this may include wrap fees, surrender or transfer charges, insurance-related charges, etc.; and

3) Individual service fees: These are fees for optional services that a plan participant chooses. For example, a participant may be charged an administration fee associated with taking a loan from his/her 401(k) account.

As the responsibility for building a retirement nest egg continues to shift from employers to employees, understanding the impact of fees and expenses on your 401(k) account is critical. To find out about your plan’s specific fees, the DOL recommends that you review your account statements, investment documents (e.g., prospectuses) and the various plan documents (such as the summary plan description and the Form 5500) available from your employer or plan administrator.

For additional information about the fees and expense discussed above visit the DOL’s website at

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

About the contributors

D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
Odysseas Papadimitriou is the founder of, a credit card and gift card marketplace, and, a personal finance site. He has more than 13 years of experience in the personal finance industry, and previously served as senior director at Capital One.

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