3 things you need to know to navigate fees in your retirement savings account

DATE | 02/19/18
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Here at Member Benefits, we talk about fees with our members every day.

When you visit our Web site, you’ll find many articles and resources regarding fees. We’ve sent a variety of e-mails to our participants about fees. We’ve created numerous ads, flyers, letters, inserts, infographics, and videos on the topic. We share posts on our social media sites. We discuss fees at every retirement seminar we present at districts across the state.

Why are we so obsessed? “Because we want everyone to understand the significant impact fees can make on a retirement savings account over the course of time,” says Brenda Echeverria, Senior Financial Planner at Member Benefits. “We can’t say it enough. It can make the difference between a comfortable retirement, a financially stressful retirement, or a delayed retirement.

“And we want you to be able to make the best financial choices you can for yourself and your future, because as public school employees, we believe you deserve it.”

Fees are often not easy to find or to understand. So once again, let’s explore the topic of fees and uncover why they’re important, why they exist, and how you can find out what and who you’re paying so you can make informed savings decisions.

Understand what fees mean to your savings potential

According to a 2016 report by the Pew Charitable Trust, about two-thirds of their 3,000 survey respondents had not read any investment fee disclosures in the past year. Thirty-one percent were not at all familiar with their plan’s fees. And of those who said they were at least somewhat familiar with their plan’s fees, 33% had not read any fee disclosures in the past year—which raises the question of just how much people may be overestimating their knowledge or underestimating the impact of fees.

Fees are going to be a part of any retirement plan—after all, companies need to generate some money so their business can function. However, not all companies charge the same fees and they can vary widely depending on the product and provider you choose. Paying excess fees can have a devastating effect on your savings and future financial security.

  • Fees increase the amount you need to save over your career to meet your goals.
  • Fees decrease the amount you can “safely” withdraw from your accounts during retirement.
  • Fees increase the likelihood that you will deplete your accounts before the end of your life.

Know who you’re paying and what you’re paying for

You wouldn’t buy a car without knowing what it’s going to cost, would you? You receive an itemized list of the costs and fees before you sign on the dotted line—itemized costs for special features, floor mats, sales tax, registration, etc. So when you walk away with your new vehicle, you know—to the penny—how much you paid and for what.

Perhaps surprisingly, that’s not often the case with retirement savings accounts. “Retirement account fees are often confusing, complicated, and not apparent,” says Brenda. “Mutual fund and variable annuity investments are required to make available a prospectus, which lists the fees for managing the investment. But if you’re buying an annuity, additional fees will be scattered within the contract and will not be aggregated as a total cost. So you have to find the fees associated with the features of your product and do the math yourself.”

There can be a lot of fingers in your retirement account or investments. Fees can be charged by the insurance or mutual fund company, financial advisor, broker, or brokerage. Here are some examples:

  • Mortality and Expense (M&E) fee to ensure payments to your beneficiaries.
  • Operating or administrative expenses.
  • Compensation or commission to brokers/dealers for selling their funds.
  • Commissions paid to the financial advisor from the financial or insurance products you buy through them. This may be on top of their hourly, flat, quarterly, or annual fee, which can vary greatly.
  • Charges for the company’s cost in managing the fund.
  • Surrender charges paid for closing an account before a holding period (surrender period) has elapsed.

It can add up. According to, on average, variable annuities charge 2.25% annually; mutual funds charge 1.4% annually; and no-load index funds charge 0.18% annually.

If you’re considering an annuity, there are some important considerations to be aware of. “Annuities are the most difficult to understand and navigate. I can’t tell you how many times members who come in for financial planning are shocked by the fees they are paying,” explains Brenda.

An insurance salesman might say there aren’t any fees when you sign the annuity contract, but does that sound right to you? No fees? Numerous fees can be built into the product with estimated costs like M&E (1.25%), insurance broker’s commissions (6‒8%), investment management fees (1%), and optional riders (0.25‒2%). Fees might be listed out or simply embedded into the interest rate or payout amount.

Also, annuities typically have surrender periods of 5, 7, or 10 years as part of the contract. If you change your mind before the maturity date, you will be subject to a surrender fee usually starting out at 8%. So you essentially give up liquidity and flexibility for that time—unless you’re willing to pay the surrender charges.

So what do you get in return for these costs? “The insurance company may guarantee a rate of return and/or a guaranteed annual benefit into the future, whether the market goes up or down. Sounds great, right? Guaranteed rate and income! However, say you are guaranteed 4%. If the market goes down, you will receive the guaranteed 4%, but if the market goes up 10% that year, you still get 4%. Who will get the other 6%? It’s not you. The point here is to understand the lost growth potential as well as the benefit of the guarantee and then decide if it’s worth the cost,” says Brenda.

If guaranteed income is what you’re looking for, remember that Wisconsin public school employees have the Wisconsin Retirement System, which— like an annuity—provides guaranteed income for life.

We want you to be able to make the best financial choices you can for yourself and your future, because as public school employees, we believe you deserve it.

Know the dollar value—do the math

Once you know what fees are being charged and at what rate, it’s important to convert it to actual dollars, Brenda explains. “I recently had a couple come in who wanted to move their account into an annuity. We had sent them the paperwork, our fee sheet, and a form that we call our ‘save form.’ It’s part of a save process we initiate when members tell us they want to move their money. This is not to save the business—although that is important to us—but to save members from making a move without all the information they need to know. This couple decided to come in and meet with me to learn more about fees. The broker from the new company told them they would ‘only’ charge them 1% a year. The couple thought this was a good deal and also liked the idea of consolidating all their accounts and eliminating multiple statements. In addition, the broker said he would ‘watch’ the funds for them. I’m not sure what ‘watch’ means but I’m certain that the 1% would be paid regardless of how well the funds perform.

“So I helped them do the math. They had $600,000 in the 403(b) they wanted to move and they were willing to pay the 1%. So I pointed out that would cost them $6,000 the first year, then $6,000 the second year, and so on. In just two years, that’s $12,000. If they kept their account here, they would only pay $300 each year because of our annual fee cap, for a total of $600.

“It was like a cost-benefit analysis. In the end, they decided dealing with more than one statement was worth saving $5,700 a year.”

Note: Our annual 403(b) fee cap is $500 as of January 1, 2019. The fee cap keeps costs in check, and our 403(b) program continues to be an excellent value for members. For more information, visit our 403(b) fees page.

Our fees are in plain sight

While implementation of the fiduciary rule has been delayed until July of 2019, know this: Member Benefits has never worked on commission and has always been transparent about our 403(b) and IRA fees.

The fee structure for both our 403(b) and IRA programs is reflective of our organization’s purpose and mission. Our administrative fees are capped annually at $500 for the 403(b) and $750 ($600 for WEAC members) for our IRA. For both, a minimum fee of $25 may apply to accounts with no contributions within a calendar year.

That’s it for our company’s fees.

Investment products have their own fees. Mutual funds, for example, charge a fee for the cost of operating the fund. This fee is expressed as an expense ratio. Expense ratios change every quarter. We monitor our mutual funds to ensure the expense ratios stay below the threshold we require.

To view expense ratios for our fund offerings, see our Investment Spectrum.

Another helpful tool you might like is FINRA’s fund analyzer.

Need some help?

We’re always happy to help you with any questions you may have. If you want help on how to assess fees or review prospectuses, or if you want to evaluate your retirement goals, check out our financial consultation options.

But you may want to go deeper. Workers who engage in retirement planning are more likely than those who have not to be familiar with their retirement plan fees, according to the Pew Charitable Trust. Member Benefits also offers several in-depth, fee-based services to help you align your portfolio with your financial goals, evaluate if you’re on track to retire, or determine if your current financial position is going to support your desired lifestyle in retirement. These comprehensive services will help you get a clear picture of how to plan for your future. Visit our financial planning page for details on these services.

This new year, resolve to uncover and evaluate your retirement savings account fees, especially if you are not with us. Compare and then decide what is in your best interest. We’re here to help you either way.

Don’t feel bad or sell yourself short if you find all this confusing…the vast majority of people do. And unfortunately, many companies count on that. But the more you know, the better you can make financial decisions that will benefit you. Just keep in mind that when it comes to hidden fees in your retirement account—what you don’t know CAN hurt you.