Mutual fund companies are reaping immediate benefits of the 401(k) plans they oversee while investors are not, New York Times columnist Gretchen Morgenson reported Sunday.
Brent L. Glading, who used to work as an executive for Merrill Lynch and Dreyfus Funds, among other firms, told Morgenson that one mutual fund company was making $8 million in revenue from the $2 billion, 20,000-participant 401(k) plan it oversaw, while costs to run it ran $2 million.
Glading, who now runs the Glading Group, a company that explores the costs of and profits generated by 401(k) plans, said that some fund companies were making five times the amount they were spending. He charges a fee only when he earns a rebate for investors that are being squeezed out of 401(k) money.
Since it is legal for the information to be kept private, it is hard for investors to figure out what kind of money their 401(k) plans are making for fund companies. Glading said the investors most at risk are those investing in plans with $50 million or more in assets, with contributors putting in more than $25,000 on average. Usually, nominal or waived fees are present as well, as the fees being incurred by customers are hidden deep in the 401(k).
Said Glading of the fund company profits: "When we sit down with a company and disclose their plans revenue flow and cost basis, we see the outrage factor."