Thursday, August 10, 2006


Lawsuit Over Hidden Pension Fees



How much does a plan participant really pay in retirement plan fees and what is the impact on economic investment performance?

A report from Bloomberg.com describes "behind the scenes" currency exchange fees as one culprit.

The class action complaint, filed August 2 in Canada, questions a bank's practice of charging foreign exchange fees on stock trades in retirement accounts, alleging secrecy, "in breach of the defendants' contractual and fiduciary duties."

Pundits predict a more intense focus on the issue of 401(k) fees stateside, and abroad, for 401(k) look-alike products.

Several reasons account for this. For one thing, financially strapped retirees seek to minimize costs for fear of having insufficient funds to pay for their golden years. Losses or sub-par performance will only add to their upset and fees could be a big component. Second, disciplined investors plan ahead by making certain assumptions about future returns. They need to incorporate all relevant costs. Third, the Pension Protection Act, likely to become U.S. law, increases the likelihood that financial firms will sell more customized (but often costlier) retirement products to defined contribution plan participants.

Not surprisingly, regulators have expressed concern about fees and urged disclosure. This may only be the beginning of a "fee frenzy".
posted by Susan Mangiero at 8/10/2006 12:14:00 AM