NEW YORK— A median-income, two-earner household will pay nearly $155,000 over the course of their lifetime in 401(k) fees, according to a new analysis by national public policy center Demos. “The Retirement Savings Drain: The Hidden and Excessive Costs of 401(k)s” details how the nation’s shift in retirement policy toward individual retirement accounts has made savers vulnerable to losing almost one-third of their investment returns to a complex, inefficient market.
Sixty-five percent of retirement savers have no idea they are paying “off-the-top” administrative, investment management, and trading fees, according to the report. While reforms like the fee disclosure rules from the U.S. Department of Labor (slated to take effect July 1) are positive steps, the Demos model described in “The Retirement Drain” shows how listing fees on accountholder statements will not address the other factors that keep fees high nor fix the structural weaknesses in the current risky, individualized retirement system.
The report, by policy analyst Robert Hiltonsmith, lays out the four key problems:
“The Retirement Savings Drain” concludes that there are reliable, alternative options to 401(k) plans that individuals, business and the government should be championing -- most notably the “Guaranteed Retirement Account” (GRA) which could save investors hundreds of thousands in hidden fees by pooling assets to drive down fees and reduce risk.
“Asking struggling American households to pay upwards of $155,000 in fees for retirement savings is more than patently unfair, it’s immoral,” said Robert Hiltonsmith, author of the report. “401(k) and IRA fees are a hidden drain on the retirement savings of hardworking Americans. It takes individuals, business, and government to create strong retirement policies but right now, the financial services industry takes advantage of the lack of understanding or even existence of these fees to charge savers excessive fees while lining its own pockets. Americans need a low-cost place to save for retirement that helps them build a retirement nest egg, instead of padding the profits of the financial industry.”