Stop Your Employer From Sabotaging Your Retirement Today

Kristin Orman By Kristin Orman, Research Analyst, The Oxford Club

Retirement Planning

Financial services firms are ripping off investors. That’s no surprise. What is surprising is that they’re ripping off their own employees…

To the tune of millions of dollars in excessive fees.

Last week, Morgan Stanley (NYSE: MS) employees sued the company for mismanaging their retirement accounts. They said Morgan Stanley was lining its own pockets by charging excessive fees in employee 401(k) accounts.

But employees of financial services firms aren’t the only ones getting ripped off. If you invest in an employer-sponsored plan, there’s a good chance that your 401(k) savings account is at risk too.

Often, plan administrators set things up so that they profit handsomely from fees charged at the expense of your returns. Many employers don’t know or don’t care.

Their negligence could be eating away at your bottom line. Luckily, you can find out if your employer-sponsored retirement account is sabotaging your retirement…

And there are steps you can take to protect your money right now.

Audit Fees Incurred

More than 70% of Americans don’t know that they pay fees on their investments. So make sure to read your annual or semiannual retirement account statement and look for excessive charges eating away at your retirement nest egg.

Most plan administrators are required to give you a fee disclosure. This document details the three types of expenses commonly incurred.

“Plan administration fees” are charged for record keeping, accounting, legal and administrative services. Sometimes the administration fees are deducted directly from investment returns or the plan’s assets. Other times, employers cover them.

“Investment fees” are the largest expense. They are charged as a percentage of assets. These fees cover management of the plan’s assets. Mutual fund management and marketing fees often make up the majority of investment fees.

“Individual service fees” are charges for optional 401(k) features such as the ability to take out a loan against your account.


After identifying the fees you’re incurring, you’ll want to figure out if you’re paying too much. The best way to do this is by calculating your 401(k) plan’s expense ratio.

Simply add up all of the fees and divide the number by the value of your account. The average 401(k) expense ratio is around 1%. Anything higher is a red flag.

Explore More Cost-Efficient Alternatives

A high expense ratio can put a big dent in retirement savings. Consider this example:

A 35-year-old employee with $25,000 in their 401(k) can expect it to grow to $227,000 in 35 years. That’s assuming a 7% annual return, low 0.5% expense ratio and no additional contributions.

But if that same account is charged 1.5%, the balance in 35 years would  be just $163,000. The extra 1% in fees reduces the final account balance by a whopping 28%!

If your fees are too high, explore your plan’s lower-cost investments. Often, your choices will change from year to year, so you should be able to find new options with more reasonable fees that still work with your goals and level of risk tolerance.

Another solution is to reduce your contributions to an employer-sponsored plan and open up a separate  IRA account. This way, you can receive any matching benefit offered by your employer and save any additional contributions for a self-directed IRA that offers better choices.

I’ve said it before: Nobody cares more about your money than you do.

So dig into your plan specifics, and do your homework yourself. Don’t count on your employer-based plan to offer what’s best or most cost-efficient for your particular retirement goals. Watch your expense ratio, and consider more cost-efficient options if you’re paying too much.

Good investing,

Kristin