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401(k) Fees No Longer Hidden (But Prepare to Be Shocked)

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Are we getting suckered by 401(k) fees that are driving down our retirement savings?

We're about to find out. And the answer could be ugly.

Beginning July 1, government rules go into effect that require service providers to clearly disclose for the first time the fees they charge to administer our 401(k) plans. We may not get the statements detailing those fees until August, however.

Industry experts say that most of the 72 million 401(k) participants will be stunned because our accounts would be worth more if the fees didn't take such a bite out of our savings.

Fees can range from 1.08 percent (for plans with more than $100 million in assets) to 1.90 percent (for those with less than $10 million in assets), according to a  recent report from the Government Accountability Office. Plans with fewer than 100 members, which account for 88 percent of plans, averaged about 1.30 percent in fees.

Not only are we clueless about how much the fees will decrease our plan's worth, but most employers say don't know how much they're paying in fees, either.

An AARP survey asked 800 workers with 401(k)s whether they pay fees at all. More than two in three (71 percent) said they didn't think they did. One in 20 (6 percent) said they weren't sure.

BrightScope, a firm that tracks 401(k) data,  reviewed one employer's retirement plan (the employer didn't believe it paid any fees). The plan had 15,000 participants and $100 million in assets. The review found that the plan was charged more than $310,000 in fees.

Understanding how much we pay in 401(k) fees is crucial because it can make  a big difference between the amount we think we saved -- and the balance minus fees we can actually take -- for retirement.

Experts say improving transparency in 401(k) fees will lead to a more competitive market among administrators and providers. In fact, some say that's already happening.

"We're already seeing fees coming down in preparation for fee disclosure," Mike Alfred, chief executive of BrightScope, told the Wall Street Journal recently.

David Wray, president of Plan Sponsor Council of America, a consortium of 1,200 companies with 401(k) plans, calls this new open environment "an incredible fee-reduction opportunity."  He also tells Fortune magazine that thousands of independent advisers who can manage 401(k)s at a lower cost are now hunting for business.

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