Starting this year, 401(k) providers must list and explain all the costs of a plan—including fees that mutual-fund companies collect from plan participants. The statements are supposed to be in “plain English” but unfortunately are often exceedingly difficult to understand. In addition, they can cause people to focus on the wrong issues.
An example is a statement one plan participant received that disclosed the management fees paid on a money market account. The money market fund was designed to be a safe haven while looking for new investment opportunities. As everyone knows, today’s money market accounts pay very close to zero. The fees that were paid to the mutual fund company that managed the fund were higher than the interest received from the fund. This can lead to taking the money out of the money fund and investing it in something else even though doing so increases the risk of loss.
Everyone agrees that fees reduce the return an investor generates from his investment. But too great a focus on fees can lead to making decisions that have a much greater impact on risk and return.
if you have received a statement about your 401(k) and seek guidance on the meaning of the new disclosure requirements, contact a reputable RIA.