As of December 31, 2012, there was $79,494,486.39 invested by 2,420 City of Greensboro employees in their 457 retirement plan, which is similar to a 401(k) or 403(b) retirement savings plan;
At first glance, Greensboro's 457 plan looks like it's paying an annual fee of $143,291.72;
The actual estimated fees are somewhere between 0.96% and 0.98%, or about $788,920*;
*The estimated fees are illustrated for a twelve month period. Fees in the above tables are provided as an estimate based on current fund balances and participant counts provided. This estimate is for illustration purposes only and was prepared based upon information provided. Actual fees may vary. For more complete information on management fees and other charges and expenses, please consult the fund's prospectus and other comparable documents.
If the City of Greensboro switches to a flat per participant fee instead of the current asset based fee, costs as a percentage of assets should fall over time;
My proposal would reduce investment costs by about 0.7%, or about $572,328 per year*;
$788,920 - $216,592 = $572,328
By lowering investment costs by 0.7% per year, participants should retain the same percentage or more per year as values compound on a hypothetical 3% return;
I believe city staff is not at fault, as they did not know.
My industry is responsible for not disclosing to fiduciaries what they should know but don't.
According the Securities and Exchange Commission’s Investor Compound Interest Calculator, paying 0.7% less over 30 years would increase participant account values by $18,504,396, if everything else remained the same.
The financial services industry and the U.S. governmental regulatory infrastructure are responsible for not acting in the best interests of consumers, as many retirement plan fiduciaries across the country continue to know not what they should.
Again, the likelihood for Greensboro city staff knowing about this underlying, hidden fees was relatively small, as the financial services business has been misleading retirement plan sponsors and participants on how compensation is acquired by brokers and plan providers.