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New Report: Hidden, Excessive 401(k) Fees Cost Retirees $155,000

NEW YORK - An median-income, two-earner household will pay nearly $155,000 over the course of their lifetime in 401(k) fees, according to a new analysis by national public policy center Demos. “The Retirement Drain: The Hidden and Excessive Costs of 401(k)s” details how the nation’s shift in retirement policy toward individual retirement accounts has made savers vulnerable to losing almost one-third of their investment returns to a complex, inefficient market.


Sixty-five percent of retirement savers have no idea they are paying “off-the-top” administrative, investment management, and trading fees, according to the report. While reforms like the fee disclosure rules from the U.S. Department of Labor (slated to take effect July 1) are positive steps, the Demos model described in “The Retirement Drain” shows how listing fees on accountholder statements will not address the other factors that keep fees high nor fix the structural weaknesses in the current risky, individualized retirement system.

The report, by policy analyst Robert Hiltonsmith, lays out the four key problems:

  • The complex relationship between savers, employers, plan recordkeepers and investment funds creates additional costs, the majority of which are borne by savers. [See flow chart of system:]
  • The individualized market is inefficient; for example, the $17.5 trillion savers invested in 2010 is spread among thousands of funds, meaning that savers do not benefit from the lower costs and pooling of risk that come from economies of scale.
  • Employees cannot decode the sophisticated menu of funds offered by their employers, and a majority mistakenly believe that higher fees guarantee higher returns.
  • Employers have little incentive to ensure their employees have the best possible plan and are increasingly choosing plans with high expense ratios, passing 91 percent of the costs to employees.


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“The Retirement Drain” concludes that there are reliable, alternative options to 401(k) plans that individuals, business and the government should be championing -- most notably the “Guaranteed Retirement Account” (GRA) which could save investors hundreds of thousands in hidden fees by pooling assets to drive down fees and reduce risk.

“Asking struggling American households to pay upwards of $155,000 in fees for retirement savings is more than patently unfair, it’s immoral,” said Robert Hiltonsmith, author of the report.  “401(k) and IRA fees are a hidden drain on the retirement savings of hardworking Americans. It takes individuals, business, and government to create strong retirement policies but right now, the financial services industry takes advantage of the lack of understanding or even existence of these fees to charge savers excessive fees while lining its own pockets. Americans need a low-cost place to save for retirement that helps them build a retirement nest egg, instead of padding the profits of the financial industry.”

“The Retirement Drain” includes a series of infographics available for republication (with attribution). To speak with Robert Hiltonsmith please see the contact information above.


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A multi-issue national organization, Demos combines research, policy development, and advocacy to influence public debates and catalyze change. We publish books, reports, and briefing papers that illuminate critical problems and advance innovative solutions; work at both the national and state level with advocates and policymakers to promote reforms; help to build the capacity and skills of key progressive constituencies; project our values into the media by promoting Demos Fellows and staff in print, broadcast, and Internet venues; and host public events that showcase new ideas and leading progressive voices.

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