How fees and employer tinkering eat away your 401(k)

Here's a quick question about your retirement savings: When was the last time you checked the fees on your 401(k)?

If you're like most Americans, chances are you're not sure what exactly your plan is charging you. Even though employers are now required to disclose more information about 401(k) fees, only about half of workers said they actually noticed the data, while just 14 percent made changes after reviewing the information, according to a 2013 study from the Employee Benefit Research Institute.

As 401(k)s gained in popularity during the 1990s and 2000s, employers touted them as a way for workers to take control of their financial future. While that may seem positive, the downside is that employees need to take greater responsibility for being on top of issues such as asset allocation and fees. In addition, employers are increasingly shifting costs onto their workers, making it even harder to save enough for your golden years.

Take IBM (IBM), which last year shifted to a once-a-year match for its employer contribution, instead of doing so for every pay period. Unless an employee is still with the company on Dec. 15 of each year, he or she won't receive IBM's 401(k) match. Pension experts said the move will save IBM substantial money, although employees were less than thrilled. A union organizer told Pensions & Investments that "workers are very angry."

IBM's decision "was a way to shift more of the burden of saving on to workers," said Robert Hiltonsmith, a policy analyst at liberal-leaning think tank Demos. If a worker leaves IBM before that date, the company "wouldn't have to make the match at all," he said.

IBM, which didn't return a request for comment, isn't alone in tinkering with its 401(k) plan in ways that reduce employer expenses. An analysis from Bloomberg News found that since the 2008 financial crisis, more companies are changing their 401(k) formulas with moves such as delaying matching dates or cutting back contributions.

About one-fifth of companies that had suspended their matching contributions still hadn't reinstated them by 2012, even though the economy had pulled out the recession and was in recovery, a study from Towers Watson found.

Employers are also increasingly shifting the burden of retirement plan fees onto their employees. Similar to health care plans, employers decide how to split the costs of running a 401(k) with their workers, as the Investment Company Institute, a national association of investment companies, noted in a 2011 study. But increasingly, employers are fiddling with the formula to their own advantage.

In 2009, employers paid 18 percent of the expense of running a 401(k) plan, while employees took on 78 percent and plans covered the remaining 4 percent. But by 2011, employers on average carried only 5 percent of the cost, and employees shouldered 91 percent. An Investment Company Institute representative said those numbers are the group's most recent figures for fee breakdowns.

Added together, employees' higher burden of expenses and companies' stingier 401(k) plans are making it more difficult to save for retirement.

Workers may not have much recourse if an employer decides to suspend or delay matches, other than look for a new job. And despite new rules on fee disclosure, most employees still have no idea that they either even pay fees or what they are, said Demos' Hiltonsmith, who recommends that workers check their fees and switch to low-fee index funds, if possible.

"These fees have a huge impact on your lifetime accumulation, and people need to be more aware," he said.

Demos' 2012 report on 401(k) plans found that a median-income, two-earner family can lose about $155,000 over a lifetime to retirement plan fees.

Hiltonsmith noted that changes are possible: When he first started at Demos, he found the company's plan had high-fee funds, including an index fund with an expense ratio of about 0.7 percent. By comparison, index-fund giant Vanguard offers an average expense ratio of less than 0.2 percent. After a complicated process, Demos has recently shifted to a new plan that offers lower-cost options.

Still, finding fees and expenses on disclosure forms remains confusing, critics charge, despite a 2012 rule from the Labor Department that aimed to make 401(k) costs clearer to employees. But some relief may be in sight: The Labor Department recently proposed a new rule to make disclosure even clearer.

Employees can also turn to resources such as BrightScope, which rates retirement plans based on fees, company generosity and employee participation rates.

"We can't afford to lose anything," Hiltonsmith said. Step one, he added, is to figure out what you're being charged and educate yourself about your options. "Most people, if they are even aware they pay fees, don't understand how much of it they pay or the effect of those fees." Don't be one of them.