A recent white paper claiming that 401(k) fees are hidden and excessive is incorrect, according to the American Society of Pension Professionals & Actuaries.
The organization disputed the 95 basis point expense ratio for index funds that was highlighted in the Demos white paper, “The Retirement Savings Drain: Hidden & Excessive Costs of 401(k)s,” saying that the expense ratios are much lower for common index funds, such as those by Vanguard and Fidelity, which are .17 percent and .07 percent respectively.
“The assumption that trading fees are equal to the expense ratio has no basis in reality,” ASPPA stated. “Trading costs vary significantly based on the frequency with which the underlying investments are traded. As a result, the white paper’s calculations are not based on accurate data.”
ASPPA believes that fee disclosure rules that take effect July 1 will make the industry even more transparent, which will create more competition among financial services companies. The Demos report stated that 401(k) plans should be replaced with a new method of retirement savings and participants would be better off in a government-run plan, according to the ASPPA. The organization disagreed saying that 401(k) plans enabled workers to save substantially more for retirement than they would have otherwise.
ASPPA argued that there are plenty of reasonably priced 401(k) plan investments available right now and they will only get better with fee disclosure.