A Roadmap to Your Fees

Retirement plan expenses can whittle away at the money in your long-term savings accounts. But how do you tell what your 401(k) fees really are?

It's not easy, even for an investment professional such as David Loeper. "It involves more than just looking at your statement," says Loeper, who heads an investment consulting firm in Richmond.

Here are a few guidelines.

1. Fund expenses charged to your 401(k) account go to the companies that manage your plan investments and are typically the largest 401(k) fees you pay. To estimate these costs, look for the expense ratio for each fund you own. That figure may be listed on your 401(k) plan Web site, or you can find it at http://www.kiplinger.com/tools/fundfinder. Expense ratios are expressed as an annual percentage of your total investments.

Next, grab your most recent 401(k) statement and record the expense ratio next to the balance in each fund you own. Multiply the expense ratio by your ending balance to determine the cost of each fund. For example, if you have $10,000 in a fund with an expense ratio of 0.55 percent, you are paying $55 a year. Add up the expenses for all of your funds. A total expense ratio of 1 percent or less is reasonable.

If your 401(k) plan uses a broker or investment consultant, as many smaller plans do, you may be charged an additional 2 percent or more in portfolio-management fees.

2. Determine if plan operating expenses are passed on to your 401(k). You may also be paying your share of what it costs your employer to operate the 401(k) plan. Bigger companies often pick up plan expenses on behalf of their employees, but smaller employers can't always afford to do that. Get a copy of your plan's summary annual report from your benefits office. Under the section labeled "basic financial statement," look for total plan expenses and subtract the amount of benefits paid. The difference is the plan's net administrative expenses.

Next compute your cost for administrative expenses, divide the net expenses (for instance, $12,000) by the total value of the plan (let's say $1.5 million). Multiply that percentage -- which is 0.8 percent (.008) in this example -- by your total account balance. That will give you your share of total plan expenses that are deducted from your account before your individual balance is calculated.

3. Investigate undisclosed or hidden costs. For example, some high-cost funds may offer a rebate to the service provider to defray overall operating expenses. Or your plan's provider may receive commissions from mutual fund companies to steer participants into higher-cost funds.

If you think your plan fees are out of line, Loeper suggests that you contact your boss and ask for lower-cost alternatives.