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As 401(k) plan service providers and employers prepare for 401(k) plan fee disclosures, they also should prepare for reports that show the impact of those fees on investment returns and on the amount of assets individuals accumulate for retirement. One such report is The Retirement Savings Drain: The Hidden & Excessive Costs of 401(k)s , published by Dēmos, a non-partisan public policy research and advocacy organization based in New York.

This research estimates that a median-income two-earner family loses nearly $154,794 as a result of direct 401(k) plan fees and the lost returns on the money paid in fees over their lifetime of plan participation. Without those fees, this hypothetical couple would amass $509,644 for retirement. With fees, that amount is reduced to $354,850 or 69% of that total.

Moreover, the higher the individual’s income, the greater the impact fees have on returns and assets. A couple with an income at the 75th percentile with both partners working and participating in a 401(k) plan can lose up to $277,969 from plan fees and lost returns. These examples assume that these couples begin contributing to a 401(k) plan at age 25 at 5% of gross pay, contribute without interruption and have gradually increased their contributions to 8% of gross pay by the time they retire at age 65. These examples also focus only on employee contributions and do not include employer contributions.

In addition, the report notes that the average mutual fund matches the average return of the overall stock market by earning a 7% return before fees are factored in. However, once those fees are subtracted, the report notes that these returns fall to 4.5% or about one-third less.

Although paying no fees for 401(k) plans and their associated investment options is not realistic, this report does highlight the potential for fee disclosures to begin a serious discussion about what constitutes a reasonable level of fees for 401(k) plans. Once plan fees are out in the open, plan sponsors and plan participants can see what they are paying compared to what they are getting both in terms of investment returns and plan services. If a plan provider’s fees are higher than those of other providers, plan sponsors can shop the plan around more easily to get a better deal for participants. In fact, it may be the plan sponsor’s fiduciary responsibility to do so.

As we have said before, these upcoming fee disclosures could be a rude awakening for employees. Surveys indicate that most 401(k) plan participants have no idea what fees are involved with their plans or who is paying them. The realization that such fees not only exist but are often borne by participants is not likely to be a welcome surprise.