Fees can drain your 401(k) retirement savings

BrightScope ratings are based on calculations that involve the public Form 5500 data that plan sponsors must provide to the Department of Labor. Although it is the most accurate information that is available, it's not made public in a timely fashion. Currently, the most recent data are from 2007.

But that will change, because starting next year, the Labor Department's data will be electronic and more easily accessible.

Not all companies are happy with BrightScope, especially if they have a poor 401(k) plan rating. Some plan sponsors complain about the data the site uses currently.

But experts say many employers themselves don't understand the plan fees or don't spend much time deciphering them, even though the Labor Department requires them to ensure that fees are reasonable.

Website and magazine Plansponsor, which monitors the 401(k) industry, no longer asks companies to provide fee information for its annual survey of employers.

"The reality is that the fees that support these programs are coming from a variety of different sources, and it makes it hard for any employer to stop long enough find out how much they pay," says Plansponsor editor Nevin Adams.

Synteract, a San Diego contract research organization, was one of the first companies to peruse BrightScope data.

Kathleen Demarest, Synteract's senior manger of human resources, says the rating helps provide information that can be used to negotiate better fees.

"It gives us a benchmark for how we're doing and leverage against our current administrator," she says.

Scott David, president of workplace investing at Fidelity Investments, says the BrightScope data have been available from third-party consultants for plan sponsors since 401(k) plans were formed. But until now, no independent source had made it easy for workers to learn about their 401(k) fees and compare them with other plans.

BrightScope officials, who expect future competition, say they are starting to see employees using the site to gather information to approach their human resource representatives with questions and complaints.

They say they know that because more companies are calling BrightScope with questions or checking out the website.

Doug Bloomfield, a retiree who still has a J.C. Penney 401(k) plan, says his former company provides participants with plenty of fee information.

"I'm sure a lot of people don't bother to look at it," he says. "It blurs together with all the other information we get."

Not easy to decipher

And even though Bloomfield sees it, that doesn't mean it's easy to evaluate. "I know I have to pay a fee, but I'm assuming that the company would get the best deal that they could because it's a big corporation," he says.

Although J.C. Penney, like many other retailers under financial stress, doesn't have a very high BrightScope 401(k) rating, the website also says that its 401(k) has low fees.

When 401(k) plans were created in 1981, they were supposed to supplement traditional pensions. But today, they are the primary retirement funds for many workers.

"Employees are deciding to put their money into a 401(k) plan," Davis says. "But without having a clear idea about fees, an informed decision cannot be made."

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