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How 401(k) Fees Destroy Wealth and What Investors Can Do to Protect Themselves

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How 401(k) Fees Destroy Wealth and What Investors Can Do to Protect Themselves

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15 min read
10 take-aways
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What's inside?

If you’re an investor with a 401(k), learn how fees and expenses can erode your investment returns.

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Editorial Rating

8

Qualities

  • Innovative
  • Applicable

Recommendation

For decades, the 401(k) industry has not provided full disclosure to employee savings plan sponsors or to individual investors. But as these plans became the dominant engine of retirement wealth in the US, they attracted more attention, especially from the US Department of Labor, which finally enacted far-reaching disclosure rules in 2012. Now, to the displeasure of the funds industry, employees and employers can see what funds charge them and what their investments really earn. Mutual fund expert Chuck Epstein offers a revealing, behind-the-scenes look at this esoteric regulatory change. He covers the impact of the change on employer-employee relationships and on the netherworld of mutual fund sales practices. The book’s title may sound prosaic, but the author capably addresses the politically incorrect and heretofore veiled topic of wealth destruction. He shows that American investors can protect their portfolios. getAbstract recommends this to 401(k) participants, plan sponsors and investors who should know how fees can eat away their savings.

Summary

Wealth Destruction

The 2007-2009 recession destroyed more wealth than did the 1930s Great Depression, although the Depression lasted longer. The recent downturn wiped out an estimated $1 trillion in US home equity and an additional $1 trillion in Americans’ investment portfolios. Between 2007 and 2009, the recession slashed American households’ net worth by 23%, and it came at a particularly bad time: Real wage growth had been stagnating, household savings rates had been declining and families were staggering under enormous debt burdens.

While recessions always destroy considerable wealth, this one hit middle- and low-income families especially hard; mass layoffs, lengthy unemployment, technological change, offshoring and age discrimination affected many people. In the workplace, these disruptions had a serious impact on the nation’s 50 million 401(k) retirement accounts. Over time, these savings, which totaled an estimated $4.5 trillion as of 2010, have become a crucial part of Americans’ financial capital, replacing traditional pension plans as most workers’ main source of retirement income. Employers who suspended their matching contributions aggravated the recession...

About the Author

Chuck Epstein has held senior positions in the mutual fund and listed futures industries at the New York Futures Exchange, Chicago Mercantile Exchange and several investment research firms. A getAbstract senior writer, he edited Managed Futures in the Institutional Portfolio and The Handbook of Corporate Earnings Analysis.

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