Your 401(k) Plan Isn’t Free

For whatever reason, I’ve found over the years, that many people seem to think their 401(k) retirement plan at work, is free. That they’re not being charged any fee(s) to invest there. Well, if you have a 401(k), or any similar retirement plan at work, I’m not sure if you’re aware or not, but you’re dealing with a for-profit company. Probably more than one, in fact. The 401(k) specifically contains three unique entities:

  1. The Third-Party Administrator. (TPA)
  2. The Plan Sponsor.
  3. The Mutual Fund and/or ETF companies.

Each of those three companies supplies various services to your 401(k)-retirement plan. In some cases, one company may act as all three. Also, since they are companies, and since they are providing critical services to a qualified retirement plan, they also charge a fee. Who do you think pays those fee(s)? I’m sure you can answer that.

Look, there’s nothing wrong or bad about these places charging a fee for what they do. Without the TPA, plan sponsor, or the mutual fund/ETF offerings, then your 401(k) wouldn’t exist. And for many employees, the 401(k) is their main vehicle for retirement savings.

So, I’m not ripping them. My mission for this blog, my books, and one day, my podcasts, is to make investors aware of things, in regard to investing, that they may not be. Be it fee(s), performance, level of risk, lack of diversification. Stuff like that. I could go on and on, but my point is simple; I want you to know what you’re getting into when you invest. Whether it’s your employer’s retirement plan, an IRA with a financial advisor, buying a stock with through online broker, or buying a CD at your local bank. I want every investor to go into each transaction knowing all the facts.

With all that said, you can obtain your retirement plan’s plan document(s) by calling the TPA or the plan sponsor. (it’s generally easier to call the plan sponsor and get this info I’ve found) Those documents will tell you everything you need to know about what the TPA and plan sponsor do and charge for their services.

What I’m always surprised to find is that a lot of people don’t realize that they’re being charged a fee, specifically for the underlying investments that are contained within the 401(k), 403(b), Solo(k), ROTH(k) or whatever other qualified retirement plan they own. What, you thought that mutual fund was free? Nope. Thought you were getting a free ETF? Um, no. And, for the record, nor should they be free. There are a few things in life I’m happy to pay for; investments, LASIK eye surgery, and medicine just to name a few. I, personally, wouldn’t want to go visit a free LASIK eye clinic.

Folks, take a few minutes and do a little research on your plan offerings. Please don’t make a decision solely on the fee each investment charges. There are many more factors that should go into an investment decision like that. But look at the expense ratio for each investment option, so that you at least know what fee(s) you’re being charged. The fee(s) are there, I can promise you that.

Just know that you are actually being charged fee(s) for your 401(k). And also, that it’s normal. Nothing is free in this life.

Except seasonal allergies. Those are free.

Okay, that’s it. I’m done.