More and more employees are investing in their futures through 401(k) plans. Employees who participate in these plans assume responsibility for their retirement income by contributing part of their salary and, in many instances, by directing their own investments.
However, hidden fees in retirement plans are confusing and are a major problem for retirement savers, explained Tony Robbins, a life strategist and author of the best-selling book "Money: Master the Game."
Unfortunately, the move toward increased disclosure has not solved this problem, Robbins explained.
"For 30 years, the industry did not even have to tell investors what they were charging," Robbins said. "Three years ago the law changed, and now you get a 35- to 50-page disclosure document that — if you're a lawyer or you have a degree in finance — maybe you can understand it."
That new rule Robbins is referring to requires that the 401(k) plan's administrator provide plan, investment and fee information to all employees. As a result of these new rules, a person can determine the reasonableness of the costs they are being charged to save for retirement and compare the costs associated with different investments.
The lack of transparency for employees in the 401(k) plan space is really because employers themselves don't understand how it works, Robbins said.
"The employer just doesn't know. I doubt seriously they're trying to harm their employees," he said. "They just don't know."
"They've been sold on an idea," Robbins added. "I was sold in my companies."
Robbins said the bottom line is this: "The more you pay in fees, the less money you have for retirement."
He pointed out that even small differences in a fee percentage can have a major impact on someone's nest egg. Cutting fees by just 1 percent, he explained, can make your money last 10 additional years in retirement.
According to Robbins, hidden fees and various backdoor payments are costing Americans about $17 billion a year and can reduce an investor's overall retirement savings by as much as 40 percent to 60 percent.
"My goal is to help people really move from the chess piece to being the chess player," said Robbins, who believes that most 401(k) participants are in the dark about their retirement plans. "You don't have to become a genius; you just have to understand what to avoid, as well as what to do."
Robbins cited a 2011 AARP study called "401(k) Participants' Awareness and Understanding of Fees" (click here to download the study), which reported 67 percent of people enrolled in 401(k) plans think they pay no fees at all. Of course, that's simply not the case.
People need to understand that there are fees and they truly matter, Robbins explained.
—By Jim Pavia, senior editor at large