401(k) Fee Complaints Go Populist
In reading "Earlier Retirement: Beating Back the High Fees" by Wall Street Journal reporter Eleanor Laise (March 6, 2010), I felt an immediate empathy for the subject of the article, Mr. Jeff Powelson. Apparently, this 401(k) plan participant lobbied his management hard to pay lower fees by replacing actively managed funds with index-tracking vehicles.
I am reminded by my own sorry experience with a "fully transparent" vendor a month ago, albeit a different product. Not having rented a car in many years, I okayed a $60+ per day fee to trek from a large Midwest airport to an important business meeting about 90 miles away. Our travel agent told me that it would cost $61 to rent a mid-size car for my colleague and me each day. I kept thinking how much we'd save by not having a van pick us up. Lo and behold when we arrived to sign the paperwork, quelle surprise! We were bombarded with hidden fees aplenty.
- If I paid with my company credit card, my colleague could not drive without me paying a surcharge of $21 per day.
- We could pre-pay for the gas at $2.98 per gallon or pay $7.98 per gallon the next day if we ran out of time to refuel before returning the car.
- Insurance would cost us about $80 per day.
- The use of a GPS device would be another $20 or $30.
A car that was supposed to cost less than $100 for our one-day excursion ended up costing about $220 with the various add-ons. More than the money, what upset me was that the car company would only let me view the numbers on an electronic screen and could not print out the contract and tally for me to review.
For those retirees (existing and prospective), fees deemed excessive, hidden and unfair are causing quite a stir. It's one thing to make a decision based on what you think is full information, only to discover that your wallet is being emptied quickly.
More complete disclosure is one answer though, as Ms. Laise points out, what does that exactly mean? Should fees be decomposed by type of expense such as "investment management, plan administration, transaction costs and other items?"
A few basis points may not seem like much but, compounded over the years, it adds up. Looking under the hood sounds right but assumes that the latch quickly gives away. If money managers and plan sponsors alike are reluctant to provide details, it will be tough going for individual savers. Also smaller companies that want to provide generous benefits may not have the negotiating power to move away from "retail" pricing. That said, the issue of fees hits home. Companies are likely going to have to move towards enhanced reporting or risk upsetting their workers who could possibly make a bee line for the exit door. When skilled and productive workers are hard to find, that outcome is far from optimal.
