JOHN OLIVER IS REALLY PISSED ABOUT 401(K) PLANS – AND YOU SHOULD BE TOO
HBO’s John Oliver recently took the 401(k) industry to task in a segment on his late-night talk show, “Last Week Tonight.” As of this writing, it has nearly 2 million views.
The comedian used his trademark dry humor to shed light on an issue that isn’t so funny: the misleading marketing, conflicts of interest, and high fees that cost retirement investors billions of dollars per year.
John Oliver got pretty angry at the financial industry—especially the broker who sold his staff their 401(k) plan—for how they treat Americans’ retirement savings. And if you invest in a 401(k), you should probably be mad too.
THE UGLY TRUTH ABOUT INVESTMENT FEES
When you invest in a 401(k) or other type of retirement plan, you typically pay a percentage of your returns to the company that manages that plan in fees. They look like very small percentages, but as Oliver demonstrated, those “tiny” fees are like termites that will “eat away your f*cking future.”
Low-cost index funds like Vanguard charge between 1 and 2 tenths of a percent in fees (0.13% on average, according to their website). That’s just $13 for every $10,000 you have invested. Insurance providers and payroll companies, the dominant players in the space, often charge seven to ten times that much. Even 2% sounds like a small number…but as “Last Week Tonight” illustrates, compounded over many years of investing, that fee can reduce your total potential nest egg by as much as two-thirds!
KNOWLEDGE IS POWER
A recent study by Hearts and Wallets found that most people either don’t know what kinds of fees they pay for their financial products, or think that they don’t pay any fees at all—of course, this is not the case.
When it comes to the 401(k) plans, it’s tough to blame the employers. They are busy running their own companies, and are not investment professionals by any stretch. They were typically sold their plans by brokers who promised a wide array of investment options and good service. But as John Oliver pointed out, these brokers usually have very few qualifications and their titles are often misleading. They are not legally obligated to sell the most cost-effective plans, or even to put your interests first. In fact, they are often encouraged to recommend options that cost you, the investor, more money because those plans generate higher profits for the companies that sell them.
This is what John Oliver’s research team discovered after they dug into the specifics of their own 401(k) plan—hence the heated (and hilarious) takedown on late-night TV.
TAKE ACTION
If you don’t work for John Oliver, you may need to examine your own 401(k) plan for red flags. Dig out your paperwork, find the fee disclosures, and read the fine print. You can also visit the fee checker on our website to get a quick assessment of the fees that your particular retirement plan charges. If you are paying excessive fees on your retirement savings, let your employer know that they may want to consider changing providers.
Don’t let the termites eat away your future—speak up, and rescue your retirement.