Illustration of How 401(k) Management Fees Add Up

Wondering why it is so important for ERISA fiduciaries to prudently select mutual funds with reasonable management fees?  Here's a telling chart provided to us by the good people at the New York Times' The Board Blog:

The chart below shows the effect on earnings of even one percentage point difference in annual fees on a 401(k) balance of $20,000 invested over 20 years.

From Government Accounting Office Report GAO-07-530T: Private Pensions: Increased Reliance on 401(k) Plans Calls for Better Information on Fees

Most 401(k) fees are deducted directly from your returns so, clearly, the higher the fees, the smaller your account balance. Yet most employees have no idea what their 401(k) fees are and many employers don’t either, even though companies that offer 401(k)’s have a responsibility to ensure that a plan’s charges are reasonable.

Any questions?

PS