Surprise, Surprise!
A friend called me last week about his 401K he was maintaining with a former employer. He was laid off last year but kept his money in the employer-sponsored 401K. In March of this year he moved everything to a money market within the 401K. When his June statement arrived, he noticed he had “an investment loss” of $135. “How could this be?” he asked me. When I looked at his statement, it did indeed say “investment loss” which is NOT the same thing as a fee. But I told him, your money market did not lose value. That’s called “breaking the buck” and when it happened in 2008 it made huge news. Your money market did not break the buck. I instructed him to call the custodian of the 401K to find out what kind of fee was being applied to his account.
Well surprise, surprise! It is not uncommon for the participants of an employer-sponsored 401K to bear some of the administrative costs each quarter. So the whole time he was employed, and for the months following his lay off he was being charged $135 a quarter. He never realized it because it was falsely labeled investment gain/loss. So…Kemosabe, what about YOUR 401K? If you’re still employed, you don’t have much choice. But if you are no longer an employee of the company, why share the administrative costs of the plan? Just a thought.
Apparently my friend is not alone in being upset about the hidden fees. The Department of Labor has finally (after about 2 years of wrestling with the subject—like it should be so difficult to say “be honest”?) issued a rule that in essence says “be transparent.” But custodians don’t have to be transparent until July 16, 2011. So the lesson here is, “reduce your reliance on government!” Ask questions yourself; don’t wait for a DOL ruling to force custodians to disclose fee information.
But now, back to the point: If you are laid off and still have your money with your former employer’s 401K plan, you might want to rethink that strategy. Rolling over your 401K into an IRA gives YOU the control. Registered Investment Advisors (which we are) are required to be—and we want to be—transparent about fees charged to your account. Mull it over. We can help.
