Saturday, August 8, 2009

Retirement Planning - 401(k) Transparency For Some

Your level of expertise often directly affects how well you do when it comes to investing. The financial acumen, the ability to sift through reams of documents, and to keep track of third party involvement is not usually the forte of the small business owner. They may be well versed in what they know, how to make and market their skill or product, how to keep employees loyal to your vision and how to think big. But add a broker or retirement plan sponsor to the mix, and most small business owners, thinking they have done good by their employees and themselves, don't go far beyond the handshake agreement they make with these financial firms.

And that is too bad. When a plan sponsor approaches a large corporation, chances are there are people within the company who specialize in watching for cost overruns. They are able to spend the time (or already know what to look for) sifting through the documents the sponsor has provided, looking for hidden fees that could impact not only the employees but the business itself.

Add to that, these sponsor have the ability to spread these costs over a wider pool of employees, essentially cutting the costs. But when these same sponsors appear on the doorstep of the small business, this is not often as clear to the purchasing manager as it should be.

While Congress is attempting to offer a solution, it will still require the small business owner to look at these plans in depth and on a relatively frequent basis. The impact of hidden fees can often be devastating to the invested dollars of the small business employee. It has been estimated that even a one percent fee, over a the course of a lifetime of retirement investing could cost as much as 17% in potential returns.

Changes in the way plans are sold, revising disclosure of the costs in real dollars rather than percentages would drive the small business owners to comparison shop. Recent studies have suggested that small business owners pay as much as twice what their larger counterparts do.

But these smaller employers do not have to wait until legislation comes down the pike to make changes yourself. Demand disclosure of fees. Require those fees to be listed in real dollars. And understand the importance of small 'nickel and dime' costs in the long range rewards that could be had by not only you, but your employees as well.

No comments: