The Hidden Fee Quietly Draining Retirement Accounts After You Stop Working

Former Employer Plans Hit Hardest With Nonemployee Maintenance Charges

Nearly half of employees leave money in their old plans during work transitions, and many unknowingly pay thousands of dollars in fees when they leave a position but don’t take their retirement savings with them. Here’s the thing: your former employer likely covered some of your account fees while you were on payroll.

Once you move on, those protections vanish. A monthly nonemployee maintenance fee on top of other costs can add up to nearly $18,000 in lost retirement funds over time. That money doesn’t just disappear from your principal balance. Workers also lose the compound growth that would have accumulated on the balance.

Millions of Forgotten Accounts Hold Trillions in Assets

As of 2023, there were 29.2 million left-behind 401(k) accounts holding roughly $1.65 trillion in assets, up 20% from two years earlier. The problem is accelerating, not shrinking. Job hopping after the Great Resignation created a tsunami of forgotten accounts, each one hemorrhaging fees.

Now, about one in four 401(k) plan assets are left behind or forgotten, up from roughly one in five just two years prior. That’s a staggering increase in a short time. Think about how many people you know who’ve switched jobs lately. Chances are, several of them left money behind without realizing the consequences.

IRA Rollovers Often Come With Higher Fees Than Expected

Rolling your 401(k) into an IRA sounds smart, but it might actually cost you more. Workers who roll money into IRAs could pay $45.5 billion in extra fees over a hypothetical retirement period of 25 years. I know it sounds crazy, but the math checks out when you look at the fee structures.

Thousands of dollars in savings can be lost over time because of what may seem like modest differences in fees between funds or between types of shares within a fund. Institutional investors, including employer-sponsored retirement plans, can leverage their purchasing power to access lower fee shares, with the mutual fund charging 0.46% annual fee if money is held in a 401(k) plan but 0.65% if in an IRA.

Investment Expense Ratios Eat Away at Returns Without Notice

Over a lifetime, fees can cost a median-income two-earner family nearly $155,000 and consume nearly one-third of their investment returns, with post-fee returns averaging only about two thirds of total returns. Those numbers should scare you, honestly. That’s not a small percentage we’re talking about.

The average expense ratio for equity mutual funds in 401(k)s was just 0.26% in 2024. Still, many plans charge significantly more. Funds with fees over 1.0% may be considered overpriced and could be underperforming cheaper alternatives. Even a seemingly small difference compounds dramatically over decades of saving.

Administrative Fees Hide in Plain Sight on Statements

Many investment professionals say 401(k) fees are hiding in plain sight, as administrators don’t send bills every year or itemize fees on statements, instead showing fees through the plan’s reduced net returns. You won’t see a line item deducted from your balance each month. The money just quietly vanishes from your investment growth.

A U.S. Government Accountability Office study reported that about two in five American workers are unaware that 401(k) plans carry fees, yet these fees can cost workers thousands and thousands of dollars throughout their working years. Ignorance isn’t bliss when it comes to retirement savings.

Revenue Sharing Arrangements Benefit Providers, Not Savers

Some mutual fund share classes rebate a portion of their investment expenses to 401(k) service providers, such as recordkeepers and financial advisors, to offset plan costs, and this revenue sharing can create conflicts of interest that keep fund costs higher than necessary. Let’s be real: these arrangements exist to benefit the companies managing your money, not you.

The majority of retirement plan providers accept payments from the mutual funds offered in the plans they sell to businesses, called revenue sharing, and as a result the investments you have to choose from in your 401(k) plan are usually the funds that pay the provider the most. It’s a pay-to-play system that puts your retirement security second.

Smaller Plans Face Disproportionately Higher Fee Burdens

Smaller 401(k) plans have higher average fees than larger ones, with the median expense ratio for plans with less than 100 participants at 1.29 percent, while for plans with more than 10,000 participants it was 0.43 percent. If you work for a small company, you’re probably paying triple what large corporation employees pay.

For smaller plans with less than $250,000 in assets, the average fee is around 1% of total assets, while for larger plans over $500,000 in assets, the average fee drops to around half a percent. The disparity is enormous, yet most small business employees have no idea they’re getting a raw deal.

Financial Advisor Charges Add Another Layer of Expense

An advisory fee of 1% is typical, and if you’re being charged a 1% advisory fee on a portfolio valued at $500,000, you’ll pay $5,000 annually. That’s a significant chunk of money every single year. Over a couple decades of retirement, you’re talking about well over $100,000 in advisor fees alone.

A financial advisor’s 1% annual fee on a $2 million portfolio could eat up $375,000 in potential returns over ten years. Think about that for a moment. That’s more than a third of a million dollars that could have been compounding in your account instead of padding someone else’s income.

The Cumulative Impact Destroys Retirement Security

If you have savings that could grow to $227,000 at retirement with reasonable fees, if fees and expenses are just one percentage point higher at 1.5 percent, your account balance will grow to only $163,000, reducing your account balance at retirement by over a quarter. That difference could mean the gap between comfortable retirement and financial stress.

The person burdened with excessive fees would experience a shortfall of over $5,000 yearly during retirement, translating to a monthly reduction of over $400, highlighting the significant impact that paying high fees on their investment portfolio during working years can have on post-retirement financial well-being. What could you do with an extra $400 every month in retirement?

The reality is harsh but important to face. Most people approaching or entering retirement have no clear picture of what they’re actually paying in fees. The government requires your plan to warn you that fees can substantially reduce your savings and provide an example, and the takeaway is simple: fees aren’t a side issue, they’re one of the most important determinants of whether you’ll reach your retirement goals. Take time to review your statements, understand what you’re being charged, and don’t be afraid to ask uncomfortable questions about where your money is really going.