It's time for employers to spin off their 401(k) plans.
Employees can benefit from having this because the programs would cease to be a black box of excessive middlemen and management expenses.
As confirmed in three recent rounds of Congressional hearings and several government reports, employers have failed to fully disclose and reduce costs in these retirement plans.
The Labor Department gave an unintended nudge on Oct. 24 to delinking when they issued new rules on default investments for 401(k) plans.
Ideally, giving you more control over your 401(k) will give you the chance to find the best providers of the most diversified funds. Unless your employer absorbs most of the fees - many don't - they have no economic incentive to do this.
Employers contract with middlemen to set up their plans to invest almost $3 trillion for 50 million US workers. Far too many of the additional expenses are passed along and gouge your retirement savings. These total expenses are not required to be fully disclosed.
It's little wonder that when AARP, the Washington-based advocacy group, surveyed Americans on how much they were paying in 401(k) fees, 83 percent responded that they didn't know.
Americans are realizing they can't rely exclusively upon their homes for their retirement kitty. For many, home equity was the only savings they had.
Enter the 401(k). Now plan fees loom large. The Government Accountability Office found that paying an additional 1 percent in 401(k) fees will reduce your retirement fund total by 17 percent after 20 years and 30 percent over 30 years.
"Many participants are not aware that they pay any fees," according to an Oct. 30 GAO report, "and those who are may not know how much they are paying."
Taking 401(k) plans out of employers' hands would create a competitive national market. Similar to what happened with private Medicare supplement insurance policies, a government- mandated template would drive down costs. Middlemen would get the boot and employees could improve their total returns.
Since the history of 401(k) reform legislation has a troubled past - most of it has never left Congressional committees intact due to industry lobbying - you can take up the charge and ask your employer these questions:
How much are 401(k) account expenses reducing your total return in terms of dollars? Simply stating percentages doesn't clearly show the losses over time.
What are middlemen charging you for commissions, administration, websites, transfers, and other fees? Are there 12(b)1, shelf space, wrap, or finder's fees? If so, how much are they reducing your total return?
What's the total cost to manage mutual funds within your plan? That would include transaction expenses to trade securities within portfolios - not clearly disclosed in any US mutual fund.
Conflicts of interest. If a broker is involved, does he also include funds in the plan managed by his company? If so, they are "double-dipping," deducting one set of fees for commissions and administrative expenses and another for money management. Their greed is costing you dearly.
How does my fund compare? You should be able to benchmark your 401(k) funds. How much do your plan's total expenses compare with an industry average? How much do returns compare with gauges such as the Standard and Poor's 500 index? If you have laggards or costly funds, you have the right to request that your employer seek lower-cost, higher-returning funds. After all, it's your money.
Every 401(k) plan should offer a standard suite of low-cost index funds that provide complete coverage of international stock, bond, real-estate, and commodity markets. The opposite has happened, though, according to a recent study published by the National Bureau of Economic Research.
"The vast majority of the new funds added to 401(k)s are high-cost, actively managed equity funds, as opposed to lower-cost equity-index funds," the study said - meaning lower returns for you and more profit for vendors and middlemen.
John F. Wasik is a syndicated columnist. He can be reached at email@example.com