We all know high costs and fees will eat into any savings plan.  This goes for retirement plans too.  That includes all those hidden 401k fees.  But there is some good news on the horizon.  The new 401k fee disclosure rules will give participants a better idea just how much their retirement plan costs.

The Department of Labor has put together new 401k fee disclosure rules that should shed some light on the costs of your retirement plan.  What we are talking about are the 401k fees charged by the plan providers.  The folks that manage and maintain your 401k plan need to get paid too.  The question of how much will finally be answered.

The overall costs may not seem like much at first.  But spread it over your entire working life and the costs only compound.  AARP gave a great example of how much a 1.5% annual fee would eat away at your retirement.

For an employee who has been working for 35 years and contributing an estimated $5,000 per year for his/her 401k plan, with an annual return of seven percent and no fees, would earn about $469,000 over the 35 year period.   However, with an annual fee of 1.5% of the account balance, the employee would earn only $345,000 in a 35 year period. AARP

This, of course, doesnt include the costs associated with mutual funds or ETFs, defined by their expense ratios.  What the new disclosure rules will do is give you the opportunity to choose the best available retirement plan to grow your money.

New 401k Fee Disclosure Rules

Starting July 1, 2012, all 401k plan service providers will be required to show the investment and administrative fees to all participants.  The new disclosure rules include:

• Administrative fees and expenses
• Individual fees and expenses i.e. taking a loan or investment advice
• Performance data (1, 5, 10 year returns if available)
• Fees and restrictions on investment transactions
• An apples-to-apples comparison of each investment product available
• All deducted fees and expenses will be listed in dollar amounts

Sometime between July and August 30, 2012, all 401k participants will receive their first disclosure statement of investment, record keeping and other fees deducted from their 401k plan each year.   After that, the fees will make a regular appearance in the quarterly statements.

What Are Your Options

Not all 401k plans are the same.  There are other options available if your retirement plan costs are too high.  Youll need to weigh your choices.  Specifically, what added benefits does your current 401k plan provide.  Is there a company match, how much, is there a vesting schedule and is giving up the match worth the cost savings.

Your first option is a talk with HR.  Human Resources might have been blindsided by the high costs too.  Since they benefit just as much as you from lower fees, it should be an easy decision.

An IRA or Roth IRA should be your second option.  It would cut the 401k fees immediately.  If your company doesnt match any contributions, an IRA is the best option.  You could open an IRA  and set automated monthly contributions.  The same can be done for your spouse.  Once youve maxed out both IRAs, you can finally put any additional retirement savings into your 401k plan.

The new 401k fee disclosure rules might be enough to change your retirement savings plan.  If the fees are too high, an alternative retirement plan might be the best choice.  Just knowing the true costs should be enough to finally rollover that old 401k  or make an IRA your primary savings option.