The 401(k) retirement accounts of many employees are going up in smoke due to excessive fees charged by their investment company. Unless this can be rectified through legislation, higher earners may end up paying for the shortfall later.
On average, Americans are compensating the companies that handle their 401(k)s more than is reasonable, according to many authorities. This means more money in the pocket of the investment industry and less in worker’s 401(k) retirement funds.
Although this scenario is publicized occasionally, few seem to care. One reason is that people hate to buck the status quo. Another is that the investment industry has a powerful lobby to prevent any change (the situation is favorable to them).
Additionally, the upper-middle-class and wealthier Americans don’t appreciate the effect the current situation could have on their own pocketbooks until it is too late. This is because they will almost certainly have to make up for all or some of the retirement funds 401(k) employees didn’t capture because it was taken out of their accounts to cover either transparent or hidden fees.
People either need to care now and support regulation for 401(k) oversight or pay later in higher taxes to support retired workers who don’t have enough to live on.
I wrote part of the backstory earlier for Physician’s Money Digest. Jerome J. Schlichter, a modern-day hero, is exposing the investment industry’s costs. To the 401(k) client, these expenses can mean the difference in having $1 million at retirement as opposed to $750,000 or $100,000 versus $75,000.
Some experts estimate the disparity is even greater. In his just-released documentary on Frontline, Martin Smith, an Emmy- and Peabody-award-winning documentary filmmaker, was told the difference could be up to a 60% loss to the employee over 50 years. I recommend that everyone watch this documentary.
Smith wrote a narrative to accompany his documentary. In it he asks, “Is there hope for change?” The answer, he suggests, is that the “Labor Department … plans to reintroduce a new fiduciary rule…”
By being aware of and supporting 401(k) fiduciary change, Americans with money are more likely to be able to keep it. This is simply because they are less likely to have to supplement lower paid worker’s retirement later (in the form of higher taxes).