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retirement fees

From Birch Gold Group

Ideas have a way of spreading beyond their initial area of influence. Sometimes, bad ideas can do the same. It sure seems like that’s the case with House Bill 2820 from Texas.

According to the Dallas Morning News, the bill “repealed the requirement for financial product sellers to register with the Teachers Retirement System. It also eliminated the already catastrophic 2.75% annual expense ceiling on products sold to teachers in their 403(b) accounts.”

This may not seem like a big deal, but it could have catastrophic effects by opening the door for “less than ethical” investment practices. According to the same article:

It made Texas safe for investment predators. The likely result will be poorer retirements for teachers and a multitude of lawsuits that may eventually cost Texas taxpayers hundreds of millions.

The intentions behind the change may have been good, but lawmakers often make things worse when they intervene in retirement plans by changing laws and writing new legislation.

Ideas that sound good at first usually don’t make it into the final version of the bills that actually get passed, which is similar to what happened almost two decades ago in Texas.

In that case, a bill that attempted to gain control of 403(b) back-end fees and expenses ended up having a key part of it objected to, and resulted in a $10 million lawsuit:

On Jan. 25, the College Life Insurance Company of America and other plaintiffs settled a class-action suit brought by a Laredo schoolteacher. The settlement was for $10,875,000 for a class of 130,000 policyholders who had been sold misleading “tax-sheltered life” plans inside their 403(b) plans — largely because no agency or school district did anything to protect the teachers.

The legislation did require that any products involved in these plans register, so Texas teachers building their retirement would know what products are in the retirement plan.

Fast forward to today, and that registration requirement has been repealed, along with the 2.75% ceiling for the already predatory fees.

Texas is currently considered an “open-access” state for retirement fund choices. According to the Dallas Morning News, this has led to major problems:

Texas is a poster child for choice overload, confusion and deceptive sales practices. The TIAA-CREF Institute found 3,367 investment options in 2010. Today the number of options is three times larger at 10,112.

 According to a recent study by Aon Hewitt, ideas like “open access” lead to 403(b) plans wasting $10 billion annually.

And with the latest change, Texas lawmakers just paved the way for more waste and “deceptive sales practices” for teachers who are going to be entering retirement at some point.

Luckily, teachers don’t have to choose a 403(b) as a vehicle for their retirement. But are 401(k) plans doing any better?

What You Don’t Know About 401(k) Fees Can Hurt You

 About 10 years ago, the AARP found that “more than 80% of 401(k) plan participants were unaware of how much they were paying in fees associated with their company’s retirement savings plan.”

That may be because those fees are “hidden,” in a way. They are both subtracted from gains before they are reported, and not explicitly listed on account statements.

This is explained a bit more thoroughly at Kiplinger:

Mutual fund returns in 401(k) plans are normally reported as net returns, meaning that fees for managing your investments are subtracted from your gains or added to your losses before calculating the annual return. Other costs, such as administrative and record-keeping fees, are often divvied up among plan participants but are not explicitly listed on individual investment statements.

 According to a Yale study, “anything above 1% is a rip off,” yet according to an article at MarketWatch, if you’re not careful, getting ripped off is exactly what could happen:

Large plans have an average fee below 1% while small plans are somewhere between 1.5% and 2% (of the account balance), according to an analysis of 401(k) plans by Brightscope. But other plans can be up to 3.5% or more per year.

Some simple advice is offered over at CNBC: “Understand that you are paying fees in your 401(k), know how much they are, and investigate the options you have in the plan.”

Knowing how much the fees are in your 401(k) is good advice. But no matter how you slice it, fees, commissions, and back-end expenses can be a burden on a 403(b) or 401(k), which can reduce your retirement savings unnecessarily.

The problem is lawmakers can still have an influence on that, like they did in Texas.

And most importantly, if lawmakers from other states decide to declare open season on your retirement plan, a half million Texas teachers won’t be the only ones suffering.

Don’t Let Lawmakers Declare “Open Season” on Your Retirement

If legislators in more states start opening the door to more high-risk investments and higher fees, your 403(b) or 401(k) will suffer. You should prepare to protect your hard-earned nest egg.

One logical option is to consider a Precious Metals IRA. Unlike the money you put into your 401(k), the physical gold and silver that you own through a self-directed IRA will not suffer from volatile paper assets or exorbitant “hidden” fees.

And with economic uncertainty increasing every week, now may be the perfect time to move into gold.

401k, investment, retirement