It is refreshing to read about and really be able to “hear” John Bogle’s honesty in last week’s article by Jennie Phipps for Bankrate.com about the future of 401(k) fees. I’ve been an investment advisor for 30+ years and my biggest pet peeve has been high fees in 401(k) plans. Hard working men and women have very limited amounts they can afford to save in 401(k) plans after the costs of raising a family (mortgage payments, education costs, car payments, food, clothes, etc.). They trust their limited savings to the care of their employer and the advisors their employer engages. They also trust that their elected officials will, at least, ensure they receive an honest disclosure of all fees. After all, they understand that these limited savings are their only hope for a reasonable retirement.
Unfortunately, elected officials allow powerful lobbyists to obtain loop holes (like not disclosing the commission costs inside mutual funds). About half of 401(k) money is in group annuities. These group annuity 401(k)s often receive fees of 3% to 5% of an employees’ savings each year. Despite this blatant abuse our elected officials allow regulators to look the other way saying, “group annuities are insurance products…. the state’s insurance commissioners need to regulate those products.”
Sadly, employers (despite being personally liable as fiduciaries) don’t take the time to research or demand their advisors provide due diligence (maybe they should require them to read John Bogle’s books) and dig until they have found and can report all fees.
“Little things mean a lot,” Vanguard founder John Bogle emphasized Tuesday in testimony to the U.S. Senate Finance Committee on the future of 401(k)s and other defined contribution plans.
He told the committee to do something about the cost of a 401(k) or other defined contribution plan because seemingly small differences in fees can make a big difference in how successful a saver is in preparing for retirement.