401 K Fees Get Congressional Attention

If you have a 401-K retirement account, you may be paying more in fees than you think. So say pension experts who spoke on Capitol Hill this week. Over time, the fees paid can personal retirement savings by tens of thousands of dollars.

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And on Fridays, we focus on your money.

Today, we turn to Capitol Hill where lawmakers have been taking a hard look at the fees financial firms charge to handle your money. Earlier this week, they scrutinized credit card companies. Yesterday, they looked at company retirement accounts or 401-Ks. Pension experts told lawmakers that many workers don't even know about fees that could be taking tens of thousands of dollars out of their retirement savings.

NPR's Frank Langfitt reports.

FRANK LANGFITT: Investments in 401-K plans can have lots of fees.

Representative GEORGE MILLER (Democrat, California; Chairman, House Education and Labor Committee): Revenue sharing, wrap fees, finder fees, shelf space, surrender charges, soft - soft dollars, 12-B1 fees.

LANGFITT: That's George Miller, chairman of the House Education and Labor Committee, at a hearing this week. He's listing the various charges that companies take out of 401-K accounts. Miller says most consumers never see all those fees.

Rep. MILLER: You have a lot of people dipping into other people's money. You know, I didn't put the money into the 401-K plans so a lot of strangers could come in and start dipping into this.

LANGFITT: Companies charge fees for various things: investment management, record keeping, Web-based customer service. All together, experts say, the fees can cost about three percent or even as much as five percent of your assets. So let's say you've got $30,000 in your 401-K, and you put in $150 a month. Assuming a typical return, after 25 years, you could have half a million dollars.

Now, Matthew Hutchison(ph), an independent pension expert, describes how paying a little more in fees can eat into your savings.

Mr. MATTHEW HUTCHISON (Independent Pension Expert): Add an additional one percent in annual fees, and the account balance drops nearly $85,000. Add one percent more, and the account balance drops $150,000.

LANGFITT: Why so much? Because each dollar you pay is one less dollar earning interest compounded annually.

Some lawmakers want more disclosure of fees. But Congressman Buck McKeon of California, the committee's ranking Republican, warned that more regulation can lead to more confusion.

Representative BUCK MCKEON (Democrat, California): The problem is, we pass laws, president signs the law, regulators write what they think that we meant when we pass the law, and by the time it all gets done, plain English is totally gone.

LANGFITT: Companies say they, too, support more disclosure. But they say they worry that providing investors with detailed information, when there are so many fees in service providers, will take more time and money.

Robert Chambers chairs the American Benefits Council, which represents major companies that provide retirement benefits.

Mr. ROBERT CHAMBERS (Chairman, American Benefits Council): Additional fee disclosure will also result in additional cost. Therefore, we must carefully measure the value of what may be gained against the cost of the annual disclosure. Let's make sure that our efforts to reduce costs do not, in the end, actually reduce savings.

LANGFITT: But others dismissed those arguments. Stephen Butler is a pension consultant from California.

Mr. STEPHEN BUTLER (Pension Consultant, California): Anyone smart enough to operate a 401-K plan today is smart enough to be able to go one step further to identify and disclose the fees that it's charging and what those fees are for. Anyone asking for an exemption from these disclosure requirements, because they say it can't be done, is insulting our intelligence.

LANGFITT: Butler says companies could list fees the way automakers itemize options on the vehicles they sell. Chairman Miller, a California Democrat, said he expects the committee to take up legislation pressing for more disclosure.

For everyone concerned, the stakes are high. Today, 47 million people participate in 401-K plans. The total value of those plans, more than $2.5 trillion.

Frank Langfitt, NPR News, Washington.

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