One problem is obsolete disclosure rules. Form 5500, for example, often does not fully reflect the administrative costs paid from employees' accounts. When a mutual fund company runs a 401(k) plan, only a fraction of overhead expenses are disclosed.
"The Form 5500 as currently structured is outdated and simply no longer reflects the way fee structures work in the industry," the Labor Department panel said. "Many explicit fees have all but disappeared and many very large plans have little or no explicit fees whatsoever."
The Labor Department is expected to propose new disclosure rules this year.
Even employers can find 401(k) fees baffling.
Gabriel Horvath, director of engineering at OPI Products, a North Hollywood cosmetics maker, was checking his quarterly statement one day and noticed that his shares in two mutual funds had been inexplicably reduced. He asked benefits director Gina Hagen for an explanation. She was equally puzzled.
Hagen called Manulife Financial, the investment provider, and learned that the plan administrator, Goldberg, Swedelson & Associates Inc. of Encino, was being paid a commission from employees' accounts.
The payments -- $10,000 in 2002 and $7,500 in 2003 -- were noticeable in a plan with just 100 participants and $1.5 million in assets.
Because OPI was paying Goldberg Swedelson for its services, Hagen couldn't figure out why the firm was also collecting money from employees.
When the plan was set up in 1997, Hagen said, she gave instructions that there would be no commission. OPI wanted to pay all the overhead expenses.
After Horvath's complaint, Hagen discovered that employees had been chipping in too, because of an apparent misunderstanding with the previous administrator.
This time, she succeeded in eliminating the commission and arranged for OPI to bear all the bureaucratic costs.
As a result, employees' 401(k) fees have dropped from an average of about $400 a year to $300.
"We've always wanted to keep the costs down for our employees saving for retirement," Hagen said.
"Now that the stock market has come to a bit of a standstill, all of a sudden the 401(k) expenses are in your face."
Cutting Company Costs
Brent Glading, the 401(k) consultant, used to sell retirement plans to employers. He switched sides in mid-2002 and now represents employers trying to reduce fees. He is paid either a flat fee or a percentage of any savings he obtains.
He estimates that costs could be slashed at 30% of all companies.
Playtex Products Inc. of Westport, Conn., says it shaved annual fees for its 1,500 employees by $250,000 by switching providers in 2004 on Glading's advice.
Employees with a $100,000 balance in their 401(k) and pension plans now pay an average of $370 in fees, compared with $580 before.
"It's a lot of money," said Julie Roe, Playtex's benefits director. "It's too much to overlook."
As he negotiates for better terms, Glading has two weapons at his disposal: his knowledge of the industry and the ability to put an employer's plan out to bid.
Despite the potential benefits to employees, Glading said, many employers spurn his services.
"One [chief financial officer] told me, 'I don't care. Why should I care? I'm here to save my company money. I don't care about my employees.' I was flabbergasted."
Times researchers Scott Wilson and John L. Jackson contributed to this report.
(BEGIN TEXT OF INFOBOX)
Are employers doing enough?
Many companies make no effort to reduce 401(k) costs or to disclose them, employer surveys from 2004 and 2005 show.
Firms that have tried to cut employees' 401(k) costs
Say they plan to do so: 10%
How employers disclose 401(k) administrative fees
Only if employee requests it: 38%
Included with account statement: 28%
Periodic written disclosures: 26%
Other methods: 8%
Source: Surveys by Hewitt Associates
A guide to a few common 401(k) terms.
Plan sponsor -- An employer.
Provider -- A financial services company that offers the mutual funds and other investment choices.
Advisor -- A firm that helps the employer choose a provider, select the investment options and make other decisions about the plan.
Administrator -- A company that processes employees' contributions, mails statements, ensures compliance with federal tax law and handles other bureaucratic chores.
Responsibilities vary from plan to plan. Sometimes companies play multiple roles.
About this series
Three articles examining practices that put Americans' retirement savings at risk.
Today: Many 401(k) accounts are being eroded by unseen fees.
Monday: Annuity providers are targeting the elderly, often with deceptive, high-pressure tactics.
Tuesday: Teachers unions are steering members into investments with high fees and poor returns.
On the Web: To share your thoughts in a discussion forum or submit a question to Times personal finance columnist Kathy M. Kristof, go to latimes.com/retire.