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Explaining 401(k) costs to consumers

How cheap or expensive is your 401(k) plan? While new government regulations require employers to disclose to employees the fees they pay, some are finding it difficult to decipher the total—or throw the disclosures away before reading them. (Employers, meanwhile, are having similar problems.)

Now, a Redwood City, Calif. company is offering a free online tool that promises to quickly analyze an investor’s 401(k) plan and offer a ballpark idea of how much it costs. At Personal Capital’s 401(k) Fee Analyzer, investors identify their employer and input their account’s user name and password. The tool spits out a color-coded rating, with green for plans with total fees of less than 1%, yellow for fees of between 1% and 2%, and red for fees above 2%.

Personal Capital presumably hopes the free service will encourage investors to consider its paid ones. The company makes money by connecting customers with its own financial advisers. Personal Capital also recently launched a 401(k) plan of its own, with fees of 0.5% of assets. The company hopes the product will appeal to small to mid-sized employers whose employees are currently saddled with higher fees, says CEO Bill Harris.

For participants, fees are a big concern: Over a 30-year career, an extra 0.5% annual fee can slash a worker’s savings at the time of retirement by 10%, according to Vanguard Group. A worker who saved $10,000 a year in a fund with expenses of 1% would wind up with $829,000, or $91,000 less than a worker paying 0.5%.


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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.