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When Fees Attack: Rolling Over A 401(k) Can Trigger Big-Time Charges

Do you know if you paid any fees when rolling over a 401(k)?
Gary Waters
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Getty Images/Ikon Images
Do you know if you paid any fees when rolling over a 401(k)?

Each year Americans pay billions of dollars in fees when they roll over their retirement accounts — and those fees can be hard to see.

Elizabeth Merry, 49, a marketing manager at a technology company, has saved up $150,000 in a 401(k) there. At the end of the year, though, she's leaving her job, and so she was thinking about rolling over that money into an IRA with the help of her financial adviser with Ameriprise Financial. She pays him $1,000 a year to manage her money.

"I asked him if there was any other associated fees for doing this, and the response that I got verbatim is 'there are no transfer fees or other tax consequences since we will be doing a direct roll-over' — so no mention of fees or loads or anything," she says.

But it turns out Merry had already rolled over about $50,000 from some other old 401(k)s at prior jobs. And she'd used this same adviser. She didn't think she'd paid any fees then. Merry responded to a post in in NPR's Your Money and Your Life Facebook group and explained her situation, and NPR took a look at her financial documents.

Turns out, her adviser put her into mutual funds with so-called load fees of 5.75 percent. Load fees are basically upfront sales charges. Researchers we spoke to say you should never pay a load fee — and especially nothing that high. In her case, Merry got hit with about $2,300 in load fees, and she says she had no idea she had paid that.

"It's appalling. It's really appalling. I'm embarrassed and mortified because that's a lot of money and the amount that I rolled over wasn't that huge of an amount," she says. "But that was really some blood, sweat and tears that I had put into that money, and I lost almost 6 percent on some of that stuff, besides the annual fee that I was paying this guy."

And if her adviser did the same thing with the larger 401(k) she was thinking of rolling over, the fee would be upwards of $7,500.

The financial adviser did not return calls requesting an interview, though Merry said he called her — confirmed she had paid those fees — and was very angry that she was doing an interview with NPR. She spoke to NPR right after the call.

"He called me this morning and was irate — and yelling. He was very condescending, very rude," she says.

In an email, the adviser had no comment on that and declined to discuss Merry's case. But he said he's "confident" that he provides his clients with "thoughtful advice and thorough disclosures." Ameriprise corporate also says the company provides extensive disclosures about fees.

But then why didn't Merry know she was being charged those fees?

Kent Smetters, an economist at the Wharton School who studies retirement accounts, says it's very hard for most people to see a lot of these fees.

"It's very difficult and one reason why is that these companies, all the major ones do this, they try to make it very unclear yet satisfy their very low legal minimum obligations," he says.

In the end, after Merry realized she had paid these big fees, her adviser said he now wanted to put her into low-cost index funds. But while Merry says she may end up investing in index funds, she says she's first going to shop around for a different adviser.

Copyright 2021 NPR. To see more, visit https://www.npr.org.

NPR correspondent Chris Arnold is based in Boston. His reports are heard regularly on NPR's award-winning newsmagazines Morning Edition, All Things Considered, and Weekend Edition. He joined NPR in 1996 and was based in San Francisco before moving to Boston in 2001.
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