Show Me the Fees

Igor Stravinsky was once ordered by an airport official to pay a surcharge for excess weight. When the composer vociferously expressed his annoyance, the official endeavored to explain the charge. “I quite understand the logic of it,” Stravinsky interrupted. “What I am objecting to is the money!”

The U.S. House of Representatives is tackling 401(k) fees again. House Education and Labor Committee Chairman George Miller (D-CA) and one of its subcommittee chairmen, Robert Andrews (D-NJ), have introduced legislation regarding 401(k) and mutual fund fee disclosure reform.

The 401(k) Fair Disclosure for Retirement Security Act would require mutual funds in 401(k) accounts to break down the fees they charge into four categories: administrative fees, investment-management fees, transaction fees, and other charges. Few people even understand that 401(k) plans have so many layers of fees, let alone fully understand the impact of those fees.

The bill also would require that plan providers disclose any financial relationships or potential conflicts of interest to plan sponsors.

BWFA strongly supports this legislation because we believe it would empower employers and consumers that use 401(k) plans to get better treatment from plan sponsors. In addition to disclosure, the bill would improve descriptions of investment options within plans and would enhance the U.S. Department of Labor’s oversight of retirement plan offerings.

Furthermore, the bill would require that each plan provide workers with at least one low-cost index fund. Just the impact of this one provision is potentially immense. Annual 401(k) fees can vary from 1% to 3% of a typical 401(k) balance. Let’s say, for example, that a low-cost index fund reduces fees by 1 percentage point, which is the same as raising returns by 1 percentage point. Here’s the difference for a person who is investing $16,500 per year (the maximum allowable in 2009) in a 401(k) for 25 years:

7% investment return $1,044,000
6% investment return $905,000
Cash gain $139,000
Percentage return gain 15%


BWFA’s advisors have always maintained that our clients should roll over an employer retirement plan, such as a 401(k), to an IRA whenever possible. You can roll over an employer plan when you leave an employer. However, some employer plans allow you to roll over all or part of your plan even while you remain at your company.

Besides lower fees, IRAs provide more investment options, superior estate planning, and consolidation of accounts to improve management of your money.

BWFA can help you maximize the tax efficiency of a rollover by considering issues such as these:

  • You can reduce your income taxes by transferring a portion of your 401(k) to an after-tax investment account if you have company stock in your 401(k) and have Net Unrealized Appreciation (NUA).
  • You may be able to transfer contributions to a Roth IRA and pay no income tax if you have made after-tax contributions to your 401(k).
  • You can make withdrawals from your 401(k) without paying the 10% early withdrawal penalty if you are between ages 55 and 59½ and you have a 401(k) at a former employer.
  • Contact us at any time to discuss your 401(k) plan and if you are eligible for a rollover, and we’ll help determine whether this makes sense for you.


Each employer plan has its own rollover paperwork, and our clients often find the paperwork and rollover process confusing. Susan Frillman, our Operations Manager, can help coordinate the procedure. Often, all it takes is a short, three-way teleconference with you, the employer plan administrator, and Susan. If paperwork is involved, Susan can complete the draft, and you can review it and sign.