High Fees
For all of the publicity surrounding how great it is to invest in a 401(k) plan, the investments themselves are often shrouded in mystery. You typically set up automatic investments through your employer, allocate your money across various funds and the rest takes care of itself. If your investments cost you anything, you don’t usually feel it since the process is so automated.
However, behind the scenes, your 401(k) plan is taking a cut. As an investor, you’ll pay the expense ratio on various funds, but your employer is likely to face additional costs from the 401(k) provider itself. These costs range from administrative fees and revenue-sharing fees to consulting and advisory fees. All of these costs reduce the total return provided for employees.
