High 401(k) fees are costing millions of Americans tens of thousands of dollars, forcing them to work years longer before retirement, according to a new report released Friday by the Center for American Progress.
The report's authors, CAP economic experts Jennifer Erickson and David Madland, call for all retirement funds to have a clear, understandable label that provides consumers with relevant, concise, and accessible information about fees.
Improved fee disclosure could help individuals make better financial decisions—especially since data show that higher-cost funds do not necessarily perform better—and could also force a national conversation about how best to improve our retirement system, they explained.
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"Every day, Americans are investing hard-earned dollars in retirement accounts that aren't working for them. Confusing and hidden fees are eating away at their savings, forcing them to work longer and save more," said Erickson.
"It's time to step up our nation's consumer protections around retirement savings and ensure that workers and employers are armed with the information they need to make better choices about their investment options."
"Better labeling of retirement fees is a no-brainer," said Madland. "At no cost to taxpayers, we can save workers a lot of money and make it much more likely that they can retire."
To understand how fees affect an individual, the Erickson and Madland provided a couple of examples.
First, if a median-income worker saving 5 percent of her salary with a match from her employer selects a fund with fees of 1 percent versus a low-fee fund with a 0.25 percent fee, she will stand to lose approximately $100,000 over her lifetime. To make up the difference in her account by retirement, she would have to work more than three additional years.
Second, if a two-person, median-income household invested in a slightly higher-than-average fund with 1.3 percent fees, these high fees will strip away one-quarter of a million dollars from its retirement savings.
Drawing on other public disclosures, a "Retirement Fund label" would be a visible box on all literature, either printed or web based, that offers a simple disclosure to both inform consumers about the risk of high fees and offer them a clear and comparable way to think about their fund options.
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