You may not realize it, but in the 401K market, where the fees you pay to the advisors who manage your plan can mean the difference, financially speaking, between a so-so retirement and a great one.

How so? Check out the scenario laid out by the U.S. Employee Benefits Security Administration: For someone with 35 years until retirement and a 401k plan valued at $25,000, fees can make a big difference. If the investments in such an account return 7% annually and fees are at 0.5% of all plan assets, that 401k plan will grow to $227,000 by the time the recipient hits retirement age – even if the recipient doesn’t drop a single additional dime into the plan.

Sounds pretty good, right? But what if the 401k plan fees were 1.5% instead of 0.5%? Then the retirement landscape isn’t so bright. Instead of $227,000, the plan participant would only have earned $163,000. In other words, fees alone would have cut into an additional 28% of the 401k’s account balance at retirement.

You’d think that investors would be clamoring for more information about 401k fees. But that’s not the case. According to a recent survey from the American Association of Retired People (AARP), a whopping 83% of 401k plan participants had no idea what they paid out in plan fees and expenses. And about half of the survey respondents weren’t aware of the impact that fees had on their 401k plan’s value.

Imagine if the waitress at your local diner added a 28% ‘service” fee to your scrambled eggs? Or if the barkeep down at your favorite pub tacked on a similar fee to your favorite brew? You’d be upset and rightfully so. But Wall Street does a good job of hiding the impact of their 401k plan fees that few people realize the impact on the value of their 401k plans - - their financial lifeline during retirement.

The good news it that you do have some leverage in determining your 401k plan fees. The path to using that leverage is through some straightforward education. Let’s take a look.

Types of 401k Plan Fees

Administration Fees -- Someone has to manage the books, so paying for record-keeping, accounting, tax and legal services, and trustee services are par for the course with 401k plans. Bundled into those fees are new-age fees for things like retirement planning software, on-line customer service, and periodic and increasingly popular “webinars” (education seminars delivered to plan participants over the Internet).

Your employer may or may not contribute to the plan provider’s administrative fees. Make sure you ask your human resources contact whether your company is paying such fees or not (if so, ask how much.)

Investment Fees – Executing trades, making portfolio allocation decisions, deciding when to buy and when to sell, and monitoring your investments and the financial markets all fall under the auspices of “investment fees”. You’re not charged on a dollar basis, per se, and you won’t find itemized investment fees on your quarterly plan statement. Investment fees are more of an indirect fee tied to a percentage of your total assets. Most fall into a range between, 0.5% - 2% of plan assets. Note that even if your 401k plan loses money, investment fees – in fact, all fees – are still in play.

A la Carte Fees -- Also known as individual service fees, these fees are for services that go above and beyond the basic accounting or investment fees incurred with your 401k plan.

If you have to borrow from your 401k plan, a handling fee is incurred in the transaction. Much like banking fees, any special services required for your account will usually incur some kind of fee.

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A note on borrowing from your 401k plan. Thing wisely before you do so.

Most 401k plans let you borrow up to half the balance (or $50,000 - whichever is less), with a five-year period to repay the loan - or longer, if you're using it to buy your first home

In theory, it's a great idea - borrow from yourself, and pay it back with interest. But as with most financial issues, it's not as simple as it sounds. Can you afford to forego the tax-interest your retirement funds otherwise could - and should - be earning all the time?

In most cases you'll find there's a better ways to borrow than risking your retirement funds. Only use your 401k plan for loans as a last resort.

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Steps to Take To Reduce Your 401k Fees

Now that you’re up against, fee-wise, what can you do minimize the negative impact that fees can have on your plan performance?

Start with the following steps:

Talk to your employee benefit representatives – Many questions regarding how fees impact your particular plan can be answered by your human resources department or employee benefits representative. Ask how much you’re paying in fees, and , if those fees seem high (usually 1.5% of your plan assets or higher), ask if there are better plans out there with more competitive fees. Employers, despite popular perception, do listen to their staffers, especially when it comes to benefits. You do have a say, so use it.

Mitigate fees on your own – Avoid onerous service fees by avoiding fee-triggering behaviors linked to your 401k plan. Taking loans is a no-no for many reasons. Among those negatives are handling fees for processing your hardship loan.

Load up on no-load funds – Check your 401k plan package (or ask your benefits rep) to see what investment choices in your 401k plan. Chances are you have a few no-load mutual fund options available. No-load funds significantly decrease the investment fee portion of your plan’s fee structure.

Turn to index funds – Like no-load mutual funds, index mutual funds offer much lower investment and administrative fees than traditional mutual funds. Most mutual fund are ‘actively managed” – meaning some fund company egg-head is making hands-on decisions every day regarding your fund. Index funds are “passively managed” - -meaning they are created to mirror a key financial index like the Russell 2000 or the Dow Jones Industrial Average Index. Whatever the Russell index or the Dow Jones does, that’s pretty how much your index fund will do. Consequently, index funds are simple and much more fee-friendly.

Get Involved

If you’re feeling ambitious, right your elected representatives in Washington and tell them you want Wall Street to start clearly noting all of their 401k plan management fees. Right now, you just about need an economics degree from Harvard to figure out what you rally owe in plan management fees.
Wall Street wants it that way but that doesn’t mean you do. Remember, when it comes to your 401k fees, a little education - - and a little perseverance – goes a long way.

For More Information

The U.S. Employee Benefits Security Administration offers a great resource for learning more about 401k fees, including a helpful 401k fee checklist. Find it at: www.dol.gov/ebsa/publications/401k_ employee.html.

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