“If you earn your income from a paycheck, chances are that one of the things you are concerned with is trying to put away enough money for your golden years,” said Rep. George Miller (D-CA), the House Education and Labor Committee chairman, in his opening statement in a committee meeting on March 6, where pension experts gave testimony on hidden fees that can take a significant amount out of workers’ retirement savings account balances. The findings confirmed the need for “better disclosure of fees to workers who have 401(k) or similar savings plans and to the companies that sponsor them,” said Miller in a statement. According to Miller, the matter is significant, since nearly 50 million Americans now have a 401(k)-style plan.
Stephen Butler, president of Pension Dynamics Corporation, testified that just over the past twenty years, excessive fees have decreased contributor account balances by an average of 15%. According to Miller, the average 401(k) account balance among private sector workers today is $28,000. He then went on to announce two goals of his committee’s hearings: how to best revitalize traditional pension plans; and how to make sure that workers with 401(k)s are getting the “best bang for their buck.” He warned that not only are workers losing a major chunk of change, but due to weak disclosure rules, most workers don’t even realize how big a percentage they are actually losing.
In her testimony, Barbara Bovbjerg, director of education, workforce, and income security issues at the Government Accountability Office, illustrated an example to show what these fees could mean to retirees. “An employee who is 45 years of age with 20 years until retirement changes employers and leaves $20,000 in a 401(k) account until retirement. If the average annual net return is 6.5% (7% investment return minus a 0.5% charge for fees), the $20,000 will grow to about $70,500 at retirement. However, if fees are instead 1.5% annually, the average net return is reduced to 5.5%, and the $20,000 will grow to only about $58,400. The additional 1% annual charge for fees would reduce the account balance at retirement by about 17%.”