There's a Surprise in Your Next 401(k) Statement

Now more than ever, the onus is on you to save for retirement. With most companies having done away with traditional pension plans, 401(k)s and other contribution-based retirement plans have become the norm. And with their growing popularity comes growing scrutiny, with 401(k)s getting a lot of criticism over the years for having high fees that are hard even to discover.

That's about to change with your next 401(k) statement.

Now new rules require plans to give you a lot more information, including badly needed disclosures about how much you're really paying to sock away money for retirement.

A Revealing Look at Your Old Plan

When you get your next 401(k) statement at the end of September, here's a list of things to watch for, and some guidelines to help you judge your employer's retirement plan and make the best choices for your future:

1. How much you pay to invest.
Until now, you've often had to dig deep in order to find any information about the investment options you have within your 401(k). But the new rules make it much easier, requiring disclosure of total annual operating expenses, both in percentage terms and in raw dollars and cents for every $1,000 you have invested in your account.

What you'll likely find is that fees are much higher than you'd expect. With many actively managed mutual funds (popular investment options in 401(k) plans) charging 1% or more in annual expenses, an account with $50,000 in retirement savings could be costing you well over $500 in lost returns each and every year. But paying less than 0.5% or $5 per $1,000 invested is a good sign.

2. How your investments are doing.
The flip side of how much an investment costs is whether it's getting the job done for you. New rules require funds to provide return information for a variety of timeframes, including one, five, and 10 years. More importantly, those returns also have to be put in the context of an appropriate market benchmark.

As a result, you'll be able to see not just how well you're doing but also how your investments have stood up to the competition. That way, even if the market has a good year, you'll know if a fund you've chosen doesn't match up -- and be able to consider better alternatives.

3. What you pay for other plan expenses.
Too many investors have made the mistake of thinking that the fees they pay for mutual funds and other investment options represent the total cost of their retirement account. But a variety of other administrative fees and transaction costs can be an even bigger drag on the growth of your savings.

The 10 Worst States for Retirees in 2012
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There's a Surprise in Your Next 401(k) Statement

High property taxes and a high foreclosure rate weigh heavily on Wisconsin. On the other hand, Social Security income is exempt from its income taxes (which are also high).

Ninth place was virtual tie, but Maine offers lower property taxes than the No. 8 state. It does, however, have higher income taxes. The governor has said he wants to make retirement income tax-exempt in Maine, but it hasn't happened yet.

New York wins (or, rather, loses) the toss-up with Maine because of its median property taxes -- the fourth highest in the nation -- and general tax burden. Generous exemptions for Social Security and pensions, as well as a high standard deduction, count in the Empire State's favor. Cost of living, of course, and the bitter winters are heavy strikes against New York -- unless you're rich, or a member of the Polar Bear Club.

With no income tax exemptions for pensions or Social Security, Minnesota puts a heavy tax burden on retirees -- the nation's fourth highest levy, according to TopRetirements's calculations.

The blight in the Garden State: taxes. New Jersey levies the nation's highest median property tax ($6579), and has the highest income tax burden as well, according to the Tax Foundation. On top of that, it's facing a big budget deficit, and features a lofty cost of living. But most pension and Social Security income is tax-exempt for couples making less than $100,000.

The Bay State is often called "Taxachusetts," and with good reason: Property taxes are among the nation's highest, and the flat rate applied to earnings beside Social Security, which is exempt (like government pensions, but not private ones), can prove costly indeed.

The Green Mountain State may be scenic, but it harbors high median property and income taxes, and its cost of living is in the top 10. Winters are described locally as "too cold to snow."

Rhode Island's scenic too, but is facing choppy economic waters, with underfunded pension and health care liabilities, as well as budget deficits. This despite the fact that the Ocean State has the fifth highest median property taxes paid.

The Prairie State is in dire fiscal straits, with terrible figures for pension funding, deficit spending, unemployment and foreclosures. The official response out of the capital in Springfield? An increase in income taxes. Most pension and Social Security income is not taxed in Illinois, but the state's 5% flat tax eats into other earnings, such as investment income.

Locked in a dead heat overall with No. 2 Illinois, Connecticut won its spot at the top of the list because of higher property and income taxes, as well as a greater cost of living.

The new rules require your employer to tell you if it passes on any general plan administrative expenses as charges to your account. In addition, if you pay any special expenses for things like taking out a 401(k) loan or splitting up your account in connection with a divorce, then your employer must disclose them as well. Such charges must appear at least quarterly and will most likely end up incorporated in your regular quarterly statement.

Ideally, you won't find any expenses here, as your employer should cover all expenses. If not, though, you'll have a better sense of how much of the bill you're shouldering.

4. How to get things done with your plan.
Finally, the new 401(k) disclosure must give you information about the way the plan is structured and what you need to do to take advantage of it. For instance, your employer needs to let you know how to make decisions about choosing investments and a list of current investment options, as well as any other arrangements that may let you go "off the menu" to choose other investments through special directed brokerage accounts.

Don't miss out!
After the market meltdown in 2008, many workers got too scared to look at their 401(k) statements, choosing instead to set them aside or just pitch them. But all the new information that your employer is required to provide won't do you any good if you never see it. So even if it's been a while, bite the bullet this time around and open your brokerage statement. You may learn a lot from what you see.
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