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Did you know a 1 percent difference in 401(k) plan fees and expenses could reduce your employees' retirement earnings by 28 percent?

Take a recent example from the Department of Labor. An employee with 35 years left until he retires has a 401(k) balance of $25,000. He doesn't make any further contributions, and returns on his investments average 7 percent. Fees and expenses reduce his average returns by 0.5 percent. He retires with a 401(k) balance of $227,000. If fees are increased by only 1 percent (reducing his average returns by 1.5 percent), his lump sum will be reduced to $163,000.

What's the moral of the story? If fees aren't a top concern when choosing a 401(k) plan for your business - they should be.

Understanding fees attached to 401(k) plans is part of making sure your employees get the most out of their investments. The Employee Retirement Income Security Act of 1974 (ERISA) requires plan sponsors (that's you) to make sure your 401(k) plan fees are "reasonable." Although it stresses "reasonable," the pension law doesn't give any set standards or benchmark figures to go on.

And fees range considerably. A 1998 Department of Labor survey found that for a company with 100 employees, annual fees for the top 17 TPAs (third-party administrators) ranged from $11,000 to $43,000 - on an annual per-participant fee, that's $114 to $428. Over time, these fees could really put a drain on that nest egg your employees are relying on for retirement.

Fees fall into three categories: plan administration (the day-to-day tasks it takes to run your plan), investment (fees tied to managing investments), and individual service (services employees may request on an individual basis). Although you aren't obligated to cover any costs, it's customary for employers to pay plan administration fees.

Investment fees are broken down further into sales charges, which are transaction costs of buying and selling shares, asset management fees, and other fees for perks like a toll-free help line.

When shopping for a plan, ask for a list of all the applicable fees and how they'll be charged, whether they're billed to the administrator or automatically deducted from employees' accounts. Another helpful tool is a Department of Labor worksheet (www.dol.gov/dol/pwba) that specifies what to ask each potential vendor.

How can you save money? Ask your employees just what services they want. Is Internet access a must while they can do without a toll-free hotline? Are they interested in the same investment options? If you can narrow this down, you can cut costs.

Also think about in-house options: Can your HR manager handle the ins and outs of training? Can an employee take on record keeping? Also, explore cost-effective Internet-only 401(k) services that are popping up.

It's a lot of work to understand 401(k) fees and expenses. But working to make sure you and your employees get the most out of your investments will pay off - especially when you have $227,000 sitting in the bank instead of $163,000.

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