Understanding 401(k) Fees

Identifying the fees associated with your 401(k) plan requires a careful review of your plan’s fee disclosures, which are often detailed in your quarterly statements or in the plan’s summary plan description. Here’s how to locate and understand these fees:

• Review Your Quarterly Statements: Your quarterly 401(k) statements typically include a breakdown of fees. Look for sections labeled “Fees and Expenses” or similar terms.

• Examine the Summary Plan Description (SPD): This document provides an overview of your plan, including detailed information about the fees associated with it. You can usually obtain the SPD from your employer or plan administrator.

• Check the Annual Fee Disclosure Notice: Under federal regulations, 401(k) plans are required to provide participants with an annual fee disclosure notice, which outlines the fees charged to your account.

Common Terms and Labels in Fee Disclosures

• Total Asset-Based Fees: These fees are charged as a percentage of the total assets in your 401(k) plan. They include investment management fees and other costs tied to the management of your investments.

• Total Operating Expenses: This term refers to the total cost of running the mutual funds or other investment options within your 401(k). It is typically expressed as a percentage of the fund’s assets and is deducted from the fund’s returns.

• Expense Ratios: The expense ratio is a key figure to look for when reviewing mutual funds within your 401(k). It represents the annual cost of managing the fund, expressed as a percentage of the fund’s average assets. For example, a fund with an expense ratio of 0.50% means that $5 is charged annually for every $1,000 invested.

By familiarizing yourself with these terms and regularly reviewing your 401(k) statements and disclosures, you can gain a clearer understanding of the fees you are paying and take steps to minimize them, thereby improving your retirement savings outcomes.