401(k) fees: Check out yours now (for free)
Congress and Corporate America have dithered and stalled for years coming up with a clear way to show 401(k) participants the fees they pay in their 401(k) plans; effectively stonewalling Americans from obtaining information that is central to successful investing.
That may all be changing. Not because your government or employer finally stepped up and did the right thing, but because of a small San Diego firm that has the crazy notion that 401(k) participants deserve to know what their plan costs. The Goliath investing lobby may have met its David.
It's only a slight exaggeration that BrightScope could rescue your retirement. The firm just launched a free online Personal 401(k) Fee Report that gives the cost breakdown for thousands of 401(k) plans. Once you plug in your plan and the amount you have invested, BrightScope will show you in actual dollar amounts what you're paying, how that compares to similar plans, and in what I think is the killer app, shows you your potential savings if you rollover old 401(k)s into a low-cost IRA. And let's be clear, if you are in a stinker of a plan, moving out can save you tens of thousands of dollars between now and retirement. (Dubious? Okay, take a look at what the GAO had to say about the damage done from high-cost 401(k) plans.)
Using the BrightScope tool is a breeze. All you need to do is register (it's free, it's quick) plug in your 401(k) accounts and then BrightScope coughs up a wealth of data.
Did I mention that BrightScope is a start-up? And that the site is in beta? And that not every plan is in its database just yet, and that some of the data for plans it does cover may not be complete? That's in fact all true. But I say: So what. I am happy to give them time to work out some kinks. Meanwhile, this tool does more to move the ball forward on 401(k) fee transparency than any government entity or trade association has ever done. If they think BrightScope is doing a bad job, well, fine, let them offer Americans something better. (And don't hold your breath.) In fact, I fully expect all sorts of turf-protecting lobbyists to start bashing this tool, and very soon. When they do, that's your sign that BrightScope is doing something very right.
A popular behavioral economics theme is the need to "nudge" investors to do the right thing and not do the wrong thing (auto enrollment, target funds, etc.) I am hoping that Brightscope's tool nudges Washington to do the right thing and finally pass regulations that will mandate fee transparency in 401(k)s, and require every 401(k) plan to offer at least one low-cost index fund. That should be non-negotiable. I am not saying only an index fund, but that among the dozen or so funds offered in a plan, make one an index fund, and then force the plan to disclose all its fees, so participants can easily see the difference.
In the meantime, go give BrightScope a whirl. You know those 401(k)s from past jobs you have just left sitting? Plug 'em in and then click on the View Fee Details tab. If you've got great low-cost plans, congrats. Sit tight if you're happy with the investment choices. If not, well, BrightScope isn't a non-profit, and its business model seems to be to drive you to do a rollover if you in fact find your plan is a big fee suck. There's a link on the Detail page to sponsor/advertiser brokerages that are standing by ready to help you with that rollover. You can check out those options, but if you're a straight-up fund or ETF investor, make sure you also give Fidelity and Vanguard a look-see; they offer some of the cheapest funds in the business. Thanks to BrightScope, you now have a clear dollar-estimate of why it's finally time to get that money rolled over.
As for your 401(k) at your current job, okay, you can't do much if it's a dog. But if in fact BrightScope does nudge more fee transparency, plan sponsors that have rubber-stamped high fee plans are going to have some explaining to do. I'm rooting for this intriguing David to embarrass the Goliaths to finally give Americans the 401(k) fee information they have long deserved.
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