Back in March, I wrote Uncover The Hidden Fees In Your 401(k) Plan. Because the hidden fees are so hard to pin down, I gave a method which helps find out if there are hidden fees in the plan and if so how much the hidden fees are.
- Find in your plan’s menu one fund that you are not using.
- Do a one-time transfer and move $100 to it. Do not include this fund in your periodic payroll contributions.
- Wait until a full quarter passes. On your next quarterly statement you should have the beginning and ending balance for that fund.
- Calculate your gain/loss in that fund. Compare your actual gain/loss with the fund’s reported performance in the quarterly statement.
I did this test in my own plan. Before the end of the first quarter, I transferred a small amount to a fund I wasn’t using. During the second quarter, I did not add any more money to the fund. The money sat in the fund untouched for the entire quarter. Now I’m able to calculate my gain or loss and compare it with the performance reported by the fund.
According to my online account information, I had $99.77 in the test fund as of March 31, 2008 and $97.04 as of June 30, 2008. My gain/loss in the 2nd quarter was 97.04 / 99.77 – 1 = -2.74% in that fund. According to the mutual fund’s web site, the fund’s performance in the 2nd quarter was also -2.74%. My loss in the fund wasn’t any larger than what the fund reported. That means there were no hidden fees deducted from my account during the quarter. Yay!!!
Did you also do this experiment? Do you know if there are hidden fees in your plan?
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I don’t know that you can correctly draw the conclusion you did. In my plan, the “hidden fees” become evident *only* at the end of the calendar year.
I believe you pretty much have to hold this fund through the calendar-year-end to ascertain the answer to your “hidden fee” question.
Harry Sit says
Anon – Yes, there is a possibility they only deduct fees at year end or in the first quarter. That’s why I said “there were no hidden fees deducted from my account during the quarter.” and not there are no hidden fees in my plan, period. I intend to leave this little bit of money in that test fund and keep watching it. Even if there are no hidden fees now, hidden fees can be added later. It’s unfortunate we have to go this far just to find out if we are paying extra fees in our 401k plan.
tfb – What if the fund is manipulating the NAV to hide the fees. Then we’d never know, correct?
Harry Sit says
Ted – This exercise is intended to find out if there are *hidden* fees beyond what the fund charges. It cannot reveal the costs within the fund, like soft dollars. If the plan uses retail mutual funds, then the NAV cannot be manipulated because the NAV and performance numbers have to be published for retail customers as well. If the funds are wrapped or in-house separate accounts, because the provider uses the same fund for many plans which have different fee structures depending on negotiations, it’s very difficult or impossible to manipulate the fund’s NAV for each plan.