US - The fee structure for 401(k) plans must be made more transparent as participants are often left unaware of costs that greatly reduce their total savings, a Government Accountability Office (GAO) report has claimed.
A 401(k) account with a balance of US$20 000 will grow to about $70 500 in 20 years if it has a net return of 6.5% each year, but with a net annual return of 5.5% that balance would grow to just $58 400 after 20 years - a 17% difference - the report stated.
Because such seemingly small differences could severely impact total savings, the GAO claimed it was "critical" that 401(k) plan participants be made fully aware of all the fees they are paying.
"But legal requirements for disclosing such fees are weak, and are often not enforced," the GAO pointed out. "As a result, it is often difficult or impossible for plan participants to compare fees from one plan or investment to the next."
The organisation made the report following a request by George Miller, senior Democrat on the House Education and the Workforce Committee, who said of the findings: "More and more Americans are relying on 401(k) plans to help them pay for their golden years. That's why it's critical that workers' hard-earned savings not be wasted on excessive fees.
"Workers need complete, accurate, and clear information about the total cost of different investment options so they can choose the ones that are best for them. They need to know exactly what fees they are paying so they can get the best deal."
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