Just a quick follow-up to our morning post on 401(k) expenses...
In his Monday column, Bloomberg's John Wasik mentioned last week's testimony from the Government Accountability Office to the House Ways and Means Committee.
Delivered October 30th, this GAO report doesn't break much new ground (and, as we'll note below, leaves some important ground utterly untouched). But the report does pass along a couple of astonishing findings from a July AARP survey.
Asked whether they know if they pay any fees for their 401(k) plans, fully 65 percent of respondents said they paid no fees. 17 percent of respondents said they paid fees and 18 percent said they didn't know if they paid any fees.
But there's more: Asked how much they paid in fees and expenses for their 401(k) plans, 83 percent of respondents said they didn't know. Given the near-impossibility of uncovering the true costs of mutual fund ownership, we'd guess the other 17 percent don't know the whole truth either.* Worse than that: we'd guess they can't know.
Anyone still think there's nothing wrong with the status quo in defined-contribution plans?
Now, about that GAO testimony. Given its title--"Information That Sponsors and Participants Need to Understand 401(k) Plan Fees"--you might expect at least an allusion to the implicit costs of mutual fund ownership (e.g., commissions, spreads, market impact, impaired dividend reinvestment, &c.). Alas, you'll search in vain for any such mention in its 19 pages of text.
Fortunately, Congress heard about this issue back in March. But it's a big one, and it can't be emphasized loudly or frequently enough.
* If your 401(k) is plagued by variable annuities, you'll have an even tougher time figuring it out.