at A Look at Fees 401(k) Plan Fees U.S. Department…

       at
A Look at
            Fees
401(k) Plan Fees
U.S. Department of Labor
Employee Benefits Security Administration
Table of Contents

Introduction....................................................      1

1. Why consider fees?...................................              2

2. What are 401(k) plan fees and who
   pays for them?............................................         3

3. What fees are associated with my
   investment choices in a 401(k)
   plan?...........................................................   6

4. Where can I get information about the
   fees and expenses charged to my
   401(k) plan account?..................................             10

5. What other factors might impact the fees
   and expenses of my 401(k) plan?...............                     12

6. Is there a checklist I can use to
   review my 401(k) plan's fees? ..................                   14

7. What other sources of information
   are available?.............................................        16
Introduction

    More and more employees are investing in their
futures through 401(k) plans. Employees who
participate in 401(k) plans assume responsibility for
their retirement income by contributing part of their
salary and, in many instances, by directing their own
investments.
    If you are among those who direct your
investments, you will need to consider the
investment objectives, the risk and return
characteristics, and the performance over time of
each investment option offered by your plan in order
to make sound investment decisions. Fees and
expenses are one of the factors that will affect your
investment returns and will impact your retirement
income.
    The information contained in this booklet
answers some common questions about the fees and
expenses that may be paid by your 401(k) plan. It
highlights the most common fees and encourages
you, as a 401(k) plan participant, to:

        make informed investment decisions;

        consider fees as one of several factors in
        your decision making;

        compare all services received with the
        total cost; and

        realize that cheaper is not necessarily
        better.

    Keep in mind, however, that this booklet is a
simplified explanation of 401(k) fees. It is not a legal
interpretation of the nation's major pension

                                                       1
protection law, the Employee Retirement Income
Security Act (ERISA), or other laws, nor is this
information intended to be investment advice.

1. Why consider fees?

     In a 401(k) plan, your account balance will
determine the amount of retirement income you will
receive from the plan. While contributions to your
account and the earnings on your investments will
increase your retirement income, fees and expenses
paid by your plan may substantially reduce the
growth in your account. The following example
demonstrates how fees and expenses can impact your
account.
     Assume that you are an employee with 35 years
until retirement and a current 401(k) account balance
of $25,000. If returns on investments in your account
over the next 35 years average 7 percent and fees and
expenses reduce your average returns by 0.5 percent,
your account balance will grow to $227,000 at
retirement, even if there are no further contributions
to your account. If fees and expenses are 1.5 percent,
however, your account balance will grow to only
$163,000. The 1 percent difference in fees and
expenses would reduce your account balance at
retirement by 28 percent.
     In recent years, there has been a dramatic
increase in the number of investment options
typically offered under 401(k) plans as well as the
level and types of services provided to participants.
These changes give today's employees who direct
their 401(k) investments greater opportunity than
ever before to affect their retirement savings. As a
participant you may welcome the variety of
investment alternatives and the additional services,


2
but you may not be aware of their cost. As shown
above, the cumulative effect of the fees and expenses
on your retirement savings can be substantial.
     You should be aware that your employer also has
a specific obligation to consider the fees and
expenses paid by your plan. ERISA requires
employers to follow certain rules in managing 401(k)
plans. Employers are held to a high standard of care
and diligence and must discharge their duties solely
in the interest of the plan participants and their
beneficiaries. Among other things, this means that
employers must:

    Establish a prudent process for selecting
    investment alternatives and service
    providers;

    Ensure that fees paid to service providers
    and other expenses of the plan are
    reasonable in light of the level and quality of
    services provided;

    Select investment alternatives that are
    prudent and adequately diversified; and

    Monitor investment alternatives and service
    providers once selected to see that they
    continue to be appropriate choices.

2. What are 401(k) plan fees and who
pays for them?

     If you want to know how fees affect your
retirement savings, you will need to know about the
different types of fees and expenses and the different
ways in which they are charged.


                                                      3
401(k) plan fees and expenses generally fall
into three categories:

Plan administration fees. The day-to-day
operation of a 401(k) plan involves expenses for
basic administrative services -- such as plan record-
keeping, accounting, legal and trustee services -- that
are necessary for administering the plan as a whole.
Today, a 401(k) plan also may offer a host of
additional services, such as telephone voice-response
systems, access to a customer service representative,
educational seminars, retirement planning software,
investment advice, electronic access to plan
information, daily valuation and online transactions.
    In some instances, the costs of administrative
services will be covered by investment fees that are
deducted directly from investment returns.
Otherwise, if administrative costs are separately
charged, they will be borne either by your employer
or charged directly against the assets of the plan.
When paid directly by the plan, administrative fees
are either allocated among individual accounts in
proportion to each account balance (i.e., participants
with larger account balances pay more of the
allocated expenses) or passed through as a flat fee
against each participant's account. Either way,
generally the more services provided, the higher the
fees.

Investment fees. By far the largest component of
401(k) plan fees and expenses is associated with
managing plan investments. Fees for investment
management and other investment-related services
generally are assessed as a percentage of assets
invested. You should pay attention to these fees. You
pay for them in the form of an indirect charge against


4
your account because they are deducted directly from
your investment returns. Your net total return is your
return after these fees have been deducted. For this
reason, these fees, which are not specifically
identified on statements of investments, may not be
immediately apparent. (See pages 6-10 for more
information on investment-related fees.)

Individual service fees. In addition to overall
administrative expenses, there may be individual
service fees associated with optional features offered
under a 401(k) plan. Individual service fees are
charged separately to the accounts of individuals
who choose to take advantage of a particular plan
feature. For example, individual service fees may be
charged to a participant for taking a loan from the
plan or for executing participant investment
directions.

401(k) plan investments and services may
be provided through a variety of
arrangements:

Employers may directly provide, or separately
negotiate for, some or all of the various services and
investment alternatives offered under their 401(k)
plans (sometimes referred to as an unbundled
arrangement). The expenses of each provider (i.e.,
investment manager, trustee, recordkeeper,
communications firm) are charged separately.

In many plans, some or all of the various services
and investment alternatives may be offered by one
provider for a fee paid to that provider (sometimes
referred to as a bundled arrangement). The provider



                                                         5
will then pay out of that fee any other service
providers that it may have contracted to provide the
services.

Some plans may use an arrangement that combines a
single provider for certain services, such as
administrative services, with a number of providers
for investment options.

Fees need to be evaluated, keeping in mind the cost
of all covered services.

3. What fees are associated with my
investment choices in a 401(k) plan?

     Apart from fees charged for administration of the
plan itself, there are three basic types of fees that
may be charged in connection with investment
alternatives in a 401(k) plan. These fees, which can
be referred to by different terms, include:

    Sales charges (also known as loads or
    commissions). These are basically
    transaction costs for the buying and selling
    of shares. They may be computed in
    different ways, depending upon the
    particular investment product.

    Management fees (also known as
    investment advisory fees or account
    maintenance fees). These are ongoing
    charges for managing the assets of the
    investment fund. They are generally stated as
    a percentage of the amount of assets
    invested in the fund. Sometimes



6
    management fees may be used to cover
    administrative expenses. You should know
    that the level of management fees can vary
    widely, depending on the investment
    manager and the nature of the investment
    product. Investment products that require
    significant management, research and
    monitoring services generally will have
    higher fees. (See page 12.)

    Other fees. This category covers services,
    such as recordkeeping, furnishing
    statements, toll-free telephone numbers and
    investment advice, involved in the day-to-
    day management of investment products.
    They may be stated either as a flat fee or as a
    percentage of the amount of assets invested
    in the fund.

In addition, there are some fees that are unique
to specific types of investments. Following are
brief descriptions of some of the more common
investments offered under 401(k) plans and
explanations of some of the different
terminology and unique fees associated with
them.

Some Common Investments and Related
Fees

    Most investments offered under 401(k) plans
today pool the money of a large number of individual
investors. Pooling money makes it possible for
individual participants to diversify investments, to
benefit from economies of scale and to lower their



                                                      7
transaction costs. These funds may invest in stocks,
bonds, real estate and other investments. Larger
plans, by virtue of their size, are more likely to pool
investments on their own -- for example, by using a
separate account held with a financial institution.
Smaller plans generally invest in commingled pooled
investment vehicles offered by financial institutions,
such as banks, insurance companies or mutual funds.
Generally, investment-related fees, usually charged
as a percentage of assets invested, are paid by the
participant.

Mutual funds. Mutual funds pool and invest the
money of many people. Each investor owns shares in
the mutual fund that represent a part of the mutual
fund's holdings. The portfolio of securities held by a
mutual fund is managed by a professional
investment adviser following a specific investment
policy. In addition to investment management and
administration fees, you may find these fees:

    Some mutual funds assess sales charges (see
    above for a discussion of sales charges).
    These charges may be paid when you invest
    in a fund (known as a front-end load) or
    when you sell shares (known as a back-end
    load, deferred sales charge or
    redemption fee). A front-end load is
    deducted up front and, therefore, reduces the
    amount of your initial investment. A back-
    end load is determined by how long you
    keep your investment. There are various
    types of back-end loads, including some
    which decrease and eventually disappear
    over time. A back-end load is paid when the




8
    shares are sold (i.e., if you decide to sell a
    fund share when a back-end load is in effect,
    you will be charged the load).

    Mutual funds also may charge what are
    known as Rule 12b-1 fees, which are
    ongoing fees paid out of fund assets. Rule
    12b-1 fees may be used to pay commissions
    to brokers and other salespersons, to pay for
    advertising and other costs of promoting the
    fund to investors and to pay various service
    providers of a 401(k) plan pursuant to a
    bundled services arrangement. They are
    usually between 0.25 percent and 1.00
    percent of assets annually.

    Some mutual funds may be advertised as
    "no-load" funds. This can mean that there is
    no front- or back-end load. However, there
    may be a small 12b-1 fee.

Collective investment funds. A collective
investment fund is a trust fund managed by a bank or
trust company that pools investments of 401(k) plans
and other similar investors. Each investor has a
proportionate interest in the trust fund assets. For
example, if a collective investment fund holds $10
million in assets and your investment in the fund is
$10,000, you have a 0.1 percent interest in the fund.
Like mutual funds, collective investment funds may
have different investment objectives. There are no
front- or back-end fees associated with a collective
investment fund, but there are investment
management and administrative fees.




                                                     9
Variable annuities. Insurance companies frequently
offer a range of investment alternatives for 401(k)
plans through a group variable annuity contract
between an insurance company and an employer on
behalf of a plan. The variable annuity contract
"wraps" around investment alternatives, often a
number of mutual funds. Participants select from
among the investment alternatives offered, and the
returns to their individual accounts vary with their
choice of investments. Variable annuities also
include one or more insurance elements, which are
not present in other investment alternatives.
Generally, these elements include an annuity feature,
interest and expense guarantees, and any death
benefit provided during the term of the contract. In
addition to investment management fees and
administration fees, you may find these fees:

     Insurance-related charges are associated
     with investment alternatives that include an
     insurance component. They include items
     such as sales expenses, mortality risk
     charges and the cost of issuing and
     administering contracts.

     Surrender and transfer charges are fees
     an insurance company may charge when an
     employer terminates a contract (in other
     words, withdraws the plan's investment)
     before the term of the contract expires or if
     you withdraw an amount from the contract.
     This fee may be imposed if these events
     occur before the expiration of a stated




10
    period, and commonly decrease and
    disappear over time. It is similar to an early
    withdrawal penalty on a bank certificate of
    deposit or to a back-end load or redemption
    fee charged by some mutual funds.

Pooled guaranteed investment contract (GIC)
funds. A common fixed income investment option, a
pooled GIC fund generally includes a number of
contracts issued by an insurance company or bank
paying an interest rate that blends the fixed interest
rates of each of the GICs included in the pool. There
are investment management and administrative fees
associated with the pooled GIC fund.

While the investments described above are common,
401(k) plans also may offer other investments which
are not described here (such as employer securities).

4. Where can I get information about
the fees and expenses charged to my
401(k) plan account?

    If you have questions about the fees and
expenses charged to your 401(k) plan, contact your
plan administrator, who should be able to assist you
with the following documents:

    If your plan permits you to direct the
    investment of assets in your account, the
    plan administrator should provide you with
    copies of documents describing investment
    management and other fees associated with




                                                     11
     each of the investment alternatives available
     to you (i.e., a prospectus). The plan
     administrator should also provide a
     description of any transaction fees and
     expenses that will be charged against your
     account balance in connection with the
     investments you direct.

     Your account statement will show the
     total assets in your account, how they are
     invested and any increases (or decreases) in
     your investments during the period covered
     by the statement. It may also show
     administrative expenses charged to your
     account. Account statements will be
     provided once a year upon request, unless
     your plan document provides otherwise.

     Your 401(k) plan's summary plan
     description (SPD) will tell you what the
     plan provides and how it operates. It may tell
     you if administrative expenses are paid by
     your plan, rather than by your employer, and
     how those expenses are allocated among
     plan participants. A copy of the SPD is
     furnished to participants when they join a
     plan and every 5 years if there are material
     modifications or every 10 years if there is no
     modification.

     The plan's annual report (Form 5500
     series) contains information regarding the
     plan's assets, liabilities, income and
     expenses and shows the aggregate
     administrative fees and other expenses paid
     by the plan. However, it will not show


12
    expenses deducted from investment results
    or fees and expenses paid by your individual
    account. Fees paid by your employer also
    will not be shown. You may examine the
    annual report for free or request a copy from
    the plan administrator (for which there may
    be a charge). In general, the summary
    annual report, which summarizes the
    annual report information, is distributed
    each year.

    In addition, you may want to consult the
business section of major daily newspapers, business
and financial publications, rating services, the
business librarian at the public library, or the Internet
(see the list of helpful Websites at the back of this
booklet). These sources will provide information and
help you compare the performance and expenses of
your investment options with other investments
outside of your 401(k) plan.
    If, after doing your own analysis, you have
questions regarding the rates of return or fees of your
plan's investment options, ask your plan
administrator for an explanation.

5. What other factors might impact the
    fees and expenses of my 401(k) plan?

        Funds that are "actively managed" (i.e.,
        funds with an investment adviser who
        continually researches, monitors, and
        actively trades the holdings of the fund
        to seek a higher return than the market)
        generally have higher fees. The higher
        fees are associated with the more active



                                                      13
     management provided and sales charges
     from the higher level of trading activity.
     While actively managed funds seek to
     provide higher returns than the market,
     neither active management nor higher
     fees necessarily guarantee higher
     returns.

     Funds that are "passively managed"
     generally have lower management fees.
     Passively managed funds seek to obtain
     the investment results of an established
     market index, such as the Standard and
     Poor's 500, by duplicating the holdings
     included in the index. Thus, passively
     managed funds require little research or
     trading activity.

     If the services and investment
     alternatives under your plan are offered
     through a bundled program, then some
     or all of the costs of plan services may
     not be separately charged to the plan or
     to your employer. For example, these
     costs possibly may be subsidized by the
     asset-based fees charged on investments.
     Compare the services received in light of
     the total fees paid.

     Plans with more total assets may be able
     to lower fees by using special funds or
     classes of stock in funds, which
     generally are sold to larger group
     investors. "Retail" or "brand name"
     funds, which are also marketed to




14
        individual and small group investors,
        tend to be listed in the newspaper daily
        and typically charge higher fees. Let
        your employer know your preference.

        Optional features, such as participant
        loan programs and insurance benefits
        offered under variable annuity contracts,
        involve additional costs. Consider
        whether they have value to you. If not,
        let your employer know.

        Retirement plans, such as 401(k) plans,
        are group plans. Therefore, your
        employer may not be able to
        accommodate each employee's
        preferences for investment alternatives
        or additional services.

6. Is there a checklist I can use to
review my 401(k) plan's fees?

     There are an array of investment options and
services offered under today's 401(k) plans. While
there is no easy way to calculate the fees and
expenses paid by your 401(k) plan due to the number
of variables involved, you can begin by asking
yourself questions and, if you cannot find the
answers, by asking your plan administrator. Answers
to the following 10 questions will help in gathering
information about the fees and expenses paid by
your plan.

            401(k) Fees Checklist

1   What investment options are offered under
    your company's 401(k) plan?
                                                    15
2    Do you have all available documentation
     about the investment choices under your
     plan and the fees charged to your plan?

3    What types of investment education are
     available under your plan?

4    What arrangement is used to provide
     services under your plan (i.e., are any or all
     of the services or investment alternatives
     provided by a single provider)?

5    Do you and other participants use most or all
     of the optional services offered under your
     401(k) plan, such as participant loan
     programs and insurance coverages?

6    If administrative services are paid separately
     from investment management fees, are they
     paid for by the plan, your employer, or are
     they shared?

7    Are the investment options tracking an
     established market index or is there a higher
     level of investment management services
     being provided?

8    Do any of the investment options under your
     plan include sales charges (such as loads or
     commissions)?

9    Do any of the investment options under your
     plan include any fees related to specific
     investments, such as 12b-1 fees, insurance
     charges or surrender fees, and what do they
     cover?


16
10 Does your plan offer any special funds or
   special classes of stock (generally sold to
   larger group investors)?

     This booklet is only the beginning of your
educational process. You should ask questions and
educate yourself about investments. Monitoring your
current investment selections and reviewing the
investment alternatives offered under your plan are
part of a process that you, as an informed participant,
will need to undertake continually.
     Keep in mind that the law requires the fees
charged to a 401(k) plan be "reasonable" rather than
setting a specific level of fees that are permissible.
Therefore, the reasonableness of fees must be
determined in each case.
     For additional information regarding the level of
fees typically charged to 401(k) plans and 401(k)
plan fees and expenses generally, see the Employee
Benefits Security Administration's Study of 401(k)
Plan Fees and Expenses, available on EBSA's
Website at www.dol.gov/ebsa

In Conclusion ...

    When you consider the fees in your 401(k) plan
and their impact on your retirement income,
remember that all services have costs. If your
employer has selected a bundled program of services
and investments, compare all services received
with the total cost.
    Remember, too, that higher investment
management fees do not necessarily mean better
performance. Nor is cheaper necessarily better.
Compare the net returns relative to the risks
among available investment options.


                                                    17
    And, finally, don't consider fees in a vacuum.
They are only one part of the bigger picture
including investment risk and returns and the extent
and quality of services provided.

7. What other sources of information
are available?

    Listed below are some organizations and their
Websites, phone numbers and publications that can
help in your research.

From the Employee Benefits Security
Administration:

     What You Should Know About Your
     Retirement Plan

Website:
    www.dol.gov/ebsa
Toll-free Publication Hotline:
    1-866-444-EBSA (3272)

     Among the items available on EBSA's Website is

     Study of 401(k) Plan Fees and Expenses
     (available only on the Internet)

From the Securities and Exchange
Commission:

     Get the Facts on Savings and Investing

     Invest Wisely - An Introduction to Mutual
     Funds




18
    Ask Questions - Questions You Should
    Ask About Your Investments ... and What
    To Do if You Run into Problems

Website:
    www.sec.gov
Toll-free phone information service:
    1-800-732-0330

From the Board of Governors of the Federal
Reserve System:
Website:
   www.federalreserve.gov

From the Comptroller of the Currency:
Website:
   www.occ.treas.gov

From the American Savings Education Council
(ASEC):
Website:
   www.choosetosave.org/asec
Phone:
   (202) 659-0670

From the Certified Financial Planner Board of
Standards:
Website:
   www.cfp.net
Phone:
   1-888-237-6275 (toll-free)

From the National Association of Securities
Dealers, Inc.:
Website:
   www.nasd.com




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