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Two Top Ways to Save More On Your Retirement Plan

June 02, 2015  |   Tax Advice   |   Tags: , ,  

According to a ruling by the Supreme Court on Monday, employers are legally bound to monitor their employees’ 401(k) and provide them with a fair deal. The Supreme Court dismissed a ruling by the 9th U.S. Circuit Court of Appeals regarding Edison International, a company that was sued by 20,000 of its employees in 2007. The employees claimed that the company wrongly purchased more expensive retail mutual funds when cheaper institutional funds were available.

retirement saving plan

A retail fund is more expensive solely because of the fees charged. The 12(b)-1 fee in particular is purposely set high so that all the vendors involved in the process of providing a 401(k) plan receive their share of the revenue. It is primarily the middlemen that profit from it.

Now, the Supreme Court has ruled in favor of the employees. Forbes discusses the impact of the ruling on the retirement plan of employees and how you can increase your savings in your retirement plan:

“Junk Fees Are History. Vanquish Them!

“Under the Supreme Court’s interpretation, an employer has an ‘ongoing fiduciary duty’ to vet what’s inside your 401(k) plan.

“As I’ve reported in the past, millions of plans are loaded with junk fees that only benefit middlemen. These include 12b-1, revenue sharing, wrap and some administrative fees.

“Unless your employer absorbs these fees — many don’t — they are passed along to you, although you may never see them. Since they can be based on a percentage on what you have on deposit in your plan, the more you have, the more they take.

“Since these fees only subtract from your plan’s balance, they are clearly not in your interest.

“The Supreme Court is not directly saying that employers should get rid of junk fees (that’s my humble opinion), they are saying that employers should follow the law and do the ‘prudent’ thing that’s in the best interests of employees. A logical leap is that all junk fees must go.

“Before employers react en masse to this ruling, check out the fee disclosure your employer provides. Look for any fees that don’t add value to your plan and ask that your employer find vendors who don’t charge them.

“Get Rid of High Management Expenses.

“You can pay way too much for a mutual fund within a 401(k).

“Yet employers often don’t care that you’re being overcharged because all the costs are deducted from your nest egg. They had little incentive to police high fees until about a dozen of them got sued and one of the suits reached the Supreme Court.

“The crux of the Tibble case was that Edison International EIX +0.39%, a large California utility company, left some expensive funds in the plan and said it didn’t have to pay attention to the plan after a certain period of time.

“The funds within the Edison plan were priced at ‘retail’, although employees could’ve taken advantage of much lower ‘institutional’ expenses — and saved more money.”