Index funds have a reputation for the low costs associated with them.
But buyer beware: Your 401(k) plan provider could be marking them up to make them cost more than you think, according to Josh Robbins, chief strategy officer at America’s Best 401k.
One sure-fire way to tell if your provider has raised the prices is to look at the fee disclosure and compare it to what you would pay if you bought the fund directly from the manager, Robbins said.
“Take a look and say, ‘Are you getting a fair price?'” Robbins said. “And oftentimes you’ll find there’s additional layers, broker compensation and other commissions. They’re really eroding your returns.”
You can get more information on your retirement plan by requesting a 404(a)-5 disclosure, which outlines the plan’s fees and expenses, suggested David Blanchett, head of retirement research at Morningstar.
While large retirement plans and certain index funds have a reputation for being less expensive, that isn’t always the case because of the costs associated with administering the plans, Blanchett said.
“Every plan is different. Just because your plan offers Vanguard investments doesn’t mean it’s a low-cost plan,” Blanchett said. “The key really is understanding for each plan what the costs are.”