The principals of CJM Fiscal Management (Melville, NY), an independent financial advisory firm, are stepping up to warn employers and their employees about the hidden fees in the 40l (k) plans and 403 (b) plans, the comparable offering to public service, government and non-profit organization workers. These fees, which range from administrative, transactional and managerial and include such names as revenue sharing, surrender, soft dollar and wrap fees, can consume as much as 50% of a retiree's ending 401(k)/403 (b) plan balance. According to CJM President Charles Massimo and Managing Director Peter S. Anastasian, that comes as a great shock to many retirees and leaves them financially vulnerable in their retirement years. Based on a House Education and Labor Committee finding, there are an estimated 50 million Americans with these plans, baby boomers representing the first generation to retire with 401 (k)/403 (b) plans.
Apparently, the U.S. Congress shares CJM's concern with legislators picking up the gauntlet in the attack on hidden fees. Recently, the House passed a bill, the "401 (k) Fair Disclosure and Pension Security Act, which Washington insiders say is also likely to pass in the Senate. The bill requires 401 (k) plans to disclose fees taken from participants' accounts in one dollar figure in a worker's quarterly statement. In addition, it would require 401(k) service providers and plan administrators to disclose fees charged on 40l (k) plans to be broken down and unbundled into four categories: administrative, investment management, transaction and other fees.
"The sad truth is that hidden fees in 40l (k)s have been a dirty secret for too long," said Massimo. "Most employees aren't even aware that there are fees associated with their plans, not to mention what could amount to as many as 17 different fees depleting their retirement funds. These fees, ranging from 2% to as high as 12%, can amount to tens of thousands of dollars."
A 2007 AARP survey confirms what Massimo says. It found that 8 out of 10 people didn't know the costs associated with their 40l (k) and 403 (b) plans.
"It is little wonder," added Anastasian. "The total fees are not written in 401 (k) contracts. Instead, they buried deep within obscure documents that account holders never see. "The frightening part is that not only are employees unaware of these fees, but many plan trustees are also in the dark and under ERISA, they are required to know all fees The liabilities to trustees associated with hidden fees and poor plan design can be quite costly." In fact, litigation relating to 401 (k) plans is on the rise.
"The move towards fee transparency is long overdue," said Massimo. "The majority of advice provided by advisors is misguided and not based on what is best for the plan participant, but rather are on how they are paid and what will generate the most fees. Often, it is a case of the fox in the hen box."
The revenue sharing fee is perhaps one of the best examples of this. Most 40l (k) plans are invested in mutual funds (e.g., stock, bonds and money market funds). The mutual fund pays the insurance company or the insurance company won't recommend the fund and then the plan sponsor also receives a kickback. Meanwhile, the account holder's savings are being gobbled up.
"Retirees have a right to understand what costs are associated with any account they hold, particularly retirement accounts that they are depending upon in their latter years," said Anastasian. "Who among us would want to learn upon retirement that their planned funds were half of what they believed them to be. Unfortunately, that has been a reality for many retirees. The new legislation is intended to help minimize this problem."
Other key requirements of the 401 (k) Fair Disclosure and Pension Security Act include: requiring plan administrators to offer at least one low-cost index fund to plan participants in order to receive protection against liability participants' investment losses; requiring service providers to disclose financial relationships so companies that sponsor 401 (k) plans can ascertain potential conflicts of interest; ensuring that if workers get investment advice, it be based on their needs and not the financial interests of the individual providing the advice; providing basic investment information to workers such as related to potential risk, return and investment objectives; and providing adjustments to pension funding rules to ensure plans can weather the economic crisis and not result in a no win choice of having to eliminate jobs or freeze plans. For complete information on the bill, visit: http:edlabor.house.gov/newsroom/2009/06/house-committee-approves-bill.shtml
CJM's Massimo and Anastasian urge 401 (k)/ 403 (b) plan trustees to seek out the advice of a qualified investment fiduciary who can uncover the hidden fees in their plans and provide recommendations not hinging upon receipt of a commission or additional fee. The investment fiduciary also assumes the responsibility of potential liabilities associated with plan management.
For guidance on this and other 401 (k) matters, contact: CJM Fiscal Management at: 631-777-1030 or visit: www.cjmfiscal.com
Apparently, the U.S. Congress shares CJM's concern with legislators picking up the gauntlet in the attack on hidden fees. Recently, the House passed a bill, the "401 (k) Fair Disclosure and Pension Security Act, which Washington insiders say is also likely to pass in the Senate. The bill requires 401 (k) plans to disclose fees taken from participants' accounts in one dollar figure in a worker's quarterly statement. In addition, it would require 401(k) service providers and plan administrators to disclose fees charged on 40l (k) plans to be broken down and unbundled into four categories: administrative, investment management, transaction and other fees.
"The sad truth is that hidden fees in 40l (k)s have been a dirty secret for too long," said Massimo. "Most employees aren't even aware that there are fees associated with their plans, not to mention what could amount to as many as 17 different fees depleting their retirement funds. These fees, ranging from 2% to as high as 12%, can amount to tens of thousands of dollars."
A 2007 AARP survey confirms what Massimo says. It found that 8 out of 10 people didn't know the costs associated with their 40l (k) and 403 (b) plans.
"It is little wonder," added Anastasian. "The total fees are not written in 401 (k) contracts. Instead, they buried deep within obscure documents that account holders never see. "The frightening part is that not only are employees unaware of these fees, but many plan trustees are also in the dark and under ERISA, they are required to know all fees The liabilities to trustees associated with hidden fees and poor plan design can be quite costly." In fact, litigation relating to 401 (k) plans is on the rise.
"The move towards fee transparency is long overdue," said Massimo. "The majority of advice provided by advisors is misguided and not based on what is best for the plan participant, but rather are on how they are paid and what will generate the most fees. Often, it is a case of the fox in the hen box."
The revenue sharing fee is perhaps one of the best examples of this. Most 40l (k) plans are invested in mutual funds (e.g., stock, bonds and money market funds). The mutual fund pays the insurance company or the insurance company won't recommend the fund and then the plan sponsor also receives a kickback. Meanwhile, the account holder's savings are being gobbled up.
"Retirees have a right to understand what costs are associated with any account they hold, particularly retirement accounts that they are depending upon in their latter years," said Anastasian. "Who among us would want to learn upon retirement that their planned funds were half of what they believed them to be. Unfortunately, that has been a reality for many retirees. The new legislation is intended to help minimize this problem."
Other key requirements of the 401 (k) Fair Disclosure and Pension Security Act include: requiring plan administrators to offer at least one low-cost index fund to plan participants in order to receive protection against liability participants' investment losses; requiring service providers to disclose financial relationships so companies that sponsor 401 (k) plans can ascertain potential conflicts of interest; ensuring that if workers get investment advice, it be based on their needs and not the financial interests of the individual providing the advice; providing basic investment information to workers such as related to potential risk, return and investment objectives; and providing adjustments to pension funding rules to ensure plans can weather the economic crisis and not result in a no win choice of having to eliminate jobs or freeze plans. For complete information on the bill, visit: http:edlabor.house.gov/newsroom/2009/06/house-committee-approves-bill.shtml
CJM's Massimo and Anastasian urge 401 (k)/ 403 (b) plan trustees to seek out the advice of a qualified investment fiduciary who can uncover the hidden fees in their plans and provide recommendations not hinging upon receipt of a commission or additional fee. The investment fiduciary also assumes the responsibility of potential liabilities associated with plan management.
For guidance on this and other 401 (k) matters, contact: CJM Fiscal Management at: 631-777-1030 or visit: www.cjmfiscal.com
Posted by Lewis J. Saret, General Editor, Wealth Strategies Journal.
Thanks for sharing such great post on hidden fees, according to me the charges which are not revealed at the time of dealing are called the Hidden fees. There are so many credit card companies and also the bank accounts that are charging us the fees and charges which we are not actually liable to pay off.
Hello Friends
This is a wonderful article. The things given are unanimous and needs to be appreciated by everyone..................
============
Ema
Financial Service
Hello Friends
This is a wonderful article. The things given are unanimous and needs to be appreciated by everyone..................
============
Ema
Financial Service