In 2004, this fee averaged 0.51% -- $51 on a $10,000 account. Overall, the company took in $48,185 from Groundwater employees that year, the most recent for which figures are available.
The payments do not appear as line items on employees' quarterly statements. Rather, Benefits Sources takes a cut of the mutual fund shares in each account. That makes the fee all but invisible.
Most employees focus on their dollar balance, not the number of shares. The share balance changes constantly as fresh contributions are added and dividends are reinvested. To detect the deductions, an employee would have to track his or her shares rigorously enough to notice that the number isn't climbing as fast as it would otherwise.
"I think it's pretty sneaky," Fuchs said. "The fees should be reported in a forthright manner, but they're not. All these companies do it. A lot of human resources people don't even know what's taken out of their own funds."
Fuchs said he learned about the administrative fee by chance: He happened to check his balance online the day the $48 was withdrawn.
"The 'pending transaction' in red got my attention," he said.
Fuchs said his employer wouldn't reveal details of Benefits Sources' fee. From Internet research, he learned that he could ask Groundwater for a copy of its Form 5500, which employers must file annually with the Labor Department, listing certain expenses paid from retirement savings plans. With the document in hand, Fuchs was able to calculate the size of the fee and how much he was being charged: about $500 a year.
That might not seem like much, but over time the effect of such charges can be huge. In addition to the direct cost, workers lose out on the interest, dividends and other returns that would pile up if the money had been left in their accounts to grow and compound.
Fuchs used calculators on the Securities and Exchange Commission website (www.sec.govunder "investor information") to arrive at his $316,000 estimate of how much administrative expenses will cost him by the time he retires in 2030.
John Zelechoski, Groundwater's manager of human resources, said that Benefits Sources had done a good job selecting mutual funds and that he had gotten few employee complaints about the plan.
Scott Rappoport, president of Benefits Sources, said its fee was in line with what other 401(k) administrators charged. He said the firm earned its money by researching investment choices, educating workers and providing other services. But he declined to detail the cost of those services or explain how the fee was determined.
Employees Lose Out
Although they have become the main retirement savings vehicle for millions of Americans, 401(k)s were not created as part of a grand plan. They were an accidental byproduct of a 1978 tax law.
Shortly after the law took effect, a few benefits consultants realized that subsection 401(k) -- intended to clarify the tax status of corporate profit-sharing plans -- allowed workers to accumulate tax-deferred savings through payroll deductions.
In the early days, employers picked up most of the administrative costs of the plans. That changed as mutual fund companies and insurers sought a larger share of 401(k) business.
Those firms offered to handle every aspect of the retirement plans, including administration. In exchange, they would have a captive audience for their investment products.
Employers liked the new arrangement because it greatly reduced their costs. The losers were employees.
In 1988, 87% of U.S. employers paid all 401(k) administrative costs. Today, only about 25% do. The rest have shifted some or all of those expenses to workers, said Pam Hess, a 401(k) expert at Hewitt Associates, a benefits consulting firm that also administers retirement plans.
As a result, employers have little incentive to hold down 401(k) costs. A 2004 Hewitt survey found that about half of employers haven't even tried to figure out what their workers are paying in fees.
"If the company doesn't have to write a check, many times they're not interested in what the participants have to pay," said Ted Benna, a Pennsylvania benefits consultant who created one of the first 401(k)s.
Moreover, because fees are usually a percentage of employees' savings, providers and administrators get paid progressively more as a plan's assets grow -- even if the amount of work they do remains the same.
The net effect, retirement experts say, is that the fees paid by 401(k) investors have become divorced from the cost of the services provided.
The work involved in running a plan -- such as enrolling employees and offering a menu of investment choices -- has "become very much a commodity," said Doug Foster, senior vice president of Denali Fiduciary Management Corp., a Seattle-based consulting firm. "There just isn't much difference anymore between Vendor A and Vendor B."
Yet there are wide variations in fees.