American workers might be losing thousands of dollars from their retirement savings without knowing it, according to David B. Loeper, author of a new book about 401(k) fees.
“A lot of the expenses are very well hidden,” said Loeper, chairman and chief executive officer of Financeware Inc., a financial advisory firm based in Richmond, Va.
The expenses, which include administrative charges, contract fees and surrender penalties, can add up over time and cost workers with 401(k) plans thousands, Loeper said.
Loeper?s soon-to-be-published book, “Stop the 401(k) Rip-off!,” highlights this example:
Assume a 40-year-old employee, with $75,000 in his 401(k) plan and earning $50,000 a year, contributes 10 percent to his plan whilethe company matches 50 percent of his contribution. If the employee plans on retiring at 65 with the hope of $32,000 annual income, expense costs of 1 percent might reduce the employee?s retirement fund by at least $100,000.
Loeper says his book “unravels the rat?s nest of hidden fees” and shows employees how to be proactive and approach their employers with cost-effective alternatives.
In July, U.S. Rep. George Miller, D-Calif., introduced the 401(k) Fair Disclosure for Retirement Security Act of 2007, which would broaden fee disclosure requirements for company-sponsored 401(k) plans. Loeper supports the legislation.
About 50 million Americans participate in 401(k) plans, and the plans continue to be reliable and profitable retirement tools, said Michael Scarborough, president and CEO of The Scarborough Group, an Annapolis firm that manages 401(k) plans.
“The fees might be a little more expensive, but I think [fees] just makes for good press,” Scarborough said.
“Should people question the companies with regard to the fees? Absolutely,” he added. “This is a get-rich-slowly scheme, but it has worked, and it has worked well.”
Loeper agreed that 401(k) plans are effective saving tools.
“There are going to be some fees,” Loeper said, “but there?s no reason to pay three times as much for the same thing.”
