Retirement

Get Your 401(k) Fees Down Because Your Employees Deserve Better

A half-percentage point in fees seems a niggling matter, until you do the numbers.
Get Your 401(k) Fees Down Because Your Employees Deserve Better
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As an entrepreneur or small business owner, your employees are your biggest asset. They share your vision, and they’re willing to sit right next to you during those long start-up nights. Retaining and keeping them happy is key to your success. Start by offering a 401(k). Why? Because it’s life-changing. 

Take a 25-year-old who’s just starting out. Let’s say he contributes $10,000 a year -- which is still less than the tax-deferred allowable amount of $18,000. Assuming a 5 percent return on investment and fees of 1.5 percent, at 65, he will have $846,000 waiting for him. That’s amazing.

Related: The Retirement Plan Strategy Small-Business Owners Need to Know About

But watch what happens if those fees fall to 0.5 percent. His nest egg jumps to $1.1 million. That’s even better. You can see that the fees matter a great deal -- and it’s your responsibility to learn about them.

What are these fees?

401(k) fees can range from 0.30 percent to close to 2 percent. They encompass everything from marketing fees, a.k.a.12(b)-1 fees, to administration and investment fees. And those fees are commissions to the person or firm that sold you the funds in disguise.

So to undo the camouflage, in 2012, the U.S. Department of Labor mandated that companies make these fees more obvious in the prospectus.  So it’s better, but it’s still super confusing.

You still need to go find your fees, then drop them into this 401(k) fee calculator and see how much they are eating away at your future nest egg. Just be sure to keep a bucket nearby in case you throw up.

That’s what almost made Tom Zgainer puke. Like many of us, he was disgusted at how much money people were losing and how much brokers were gaining. “There are approximately 95 million people participating in over 600,000 retirement plans in the U.S.,” says Zgainer.  So everyone should care.

Zgainer cared so much that in April 2012, he started America’s Best 401(k) (ABK) and dove into an arena that has typically been occupied by the big boys -- national payroll companies, insurance companies and Wall Street brokerage firms.

Related: 4 Questions Entrepreneurs Should Ask Their 401(K) Providers

But as the former vice president of corporate retirement plans for Personal Capital, he saw what was happening and wanted to create something better. ABK’s fees hover around 0.65 percent, according to CEO Zgainer. In addition, he offers low-cost mutual funds from fund companies like Vanguard and Blackrock with tons of transparency -- that means line-item pricing -- so every fee is explicitly shown.

That transparency caught the eye of uber-passionate life and business strategist Tony Robbins. “You can’t control the market but you can control fees. That’s half the battle,” says Robbins. The author of no. 1 New York Times Bestseller Money: Master the Game, first became a client of ABK in his search of low-fees plans for himself. He was so impressed that not only did he include ABK in his book (Chapter 5 for those of you who have it), but he and his son Josh decided to partner with them.

So stop giving money to brokers (with all due respect).

We get it. It’s tough. So many entrepreneurs are more concerned about selling product and keeping the lights on, than digging through the tomes of their 401k plans. But you owe it to the people who were there with you from the beginning.

And whether its fear of change or dedication to your buddy the broker, drop it. Under the law -- yes, the law -- your plan must be for benefit of your employees, not your buddy the broker. So move on.

Related: 10 Flaws of Conventional Retirement Plans

The good news is that ABK has streamlined the process. “We can do it painlessly in six weeks,” says Zgainer. So challenge Zgainer to get it done. And challenge yourself to get those fees down. You work too hard for your money to give it away like that. And your employees’ deserve better.