Money Obedience

The House Introduces 401(k) Fee Disclosure Bill - finally. Now let’s hope that the folks in Congress will actually pass the bill. The only reason why a bill like this had not been passed sooner is quite simple. Companies who are involved in the 401(k) business want to make money, and lots of it. And they want to make this money very quietly. My guess is that, until now, these companies had enough influence on Congress and/or the President to prevent any such bill from being introduced and/or from being signed into law.

Why is this bill so important? Well, they charge us all kinds of fees just to hold our money – even as they’re imploring us to save for our own retirements. Now that we have lost lots and lots of money with the declining stock market, people finally realize that we have been paying through our noses for the privilege to save for our own retirement. So, we should know how much saving is actually costing us, but many of us don’t. Let me show you an example how these fees alone make it especially difficult to put money away for retirement.

Let’s say you save $500 every month for 30 years and your average return in that time period is 7.5%. In 30 years you will have a nest egg of about $641,000. Pretty nice, isn’t it? But now let’s assume that you are saving these $500 in your 401k account. Let’s say that the various companies involved in the management of your money charge you a 2% fee. That does not sound like that much, does it? But, guess what! Over 30 years it adds up to a nice chunk of money. After you pay the 2% fees ever year for 30 years, your $500 monthly contributions add up to only $445,000 – you’ve “lost” nearly $200,000! Said another way, it comes to nearly 1/3 less the amount that you would otherwise have had! That money doesn’t just disappear - these $200,000 of lost return on your savings go right into the pockets of the companies who are “helping” you with your 401k savings.

This new bill would not eliminate these fees, but it helps to ensure that you know exactly how much of your 401k is taken out by each company involved in your savings. You can use that information to figure out how much these fees will cost you over the years you save. When you know the fees, you can also make an educated decision about how you could best invest your money. Right now it is very difficult for anyone of us to make such an educated decision because we don’t have full information about how much these companies are grabbing. Now do you still wonder why such a bill has not been introduced earlier?

If you’re thinking that this is the kind of information you’d find useful, I suggest you write to your Congressman/Congresswoman and to your Senator to make sure that this bill gets passed.