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Does Your Retirement Plan Hide These Hidden Expenses?

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While employers have to disclose nearly all of their retirement plan expenses — which eat into your ability to save — they may not tell you all of the costs involved.

Funds that involve “revenue sharing” rebate some of their fees to middlemen called recordkeepers. This practice, involving more than half of 401(k) programs, can increase the costs to you. That’s not a good thing.

According to a recent study “the results indicate that rebates translate into higher expense ratios in the retirement setting…Consequently, participants face higher all-in fees in revenue-sharing plans.”

In terms of simple math, the higher the fund expenses, the less you can save. In most cases, you pay dearly for high fees, which also reduce total return.

 “The bulk of the under-performance is driven by higher fees, though revenue-sharing funds display lower performance even after accounting for fees,” the researchers note.

So you have a simple question for your retirement plan administrator: Does your plan have revenue-sharing? If the answer is yes, have your company look for another vendor that doesn’t practice revenue sharing. There’s plenty of competition and low-cost funds in the market now.