Invariably, whether talking with parents at my daughter's soccer game or sharing coffee at church, I'm asked the same question: "Will you look at my 401k?" What they want is help selecting among the 10, 20 or 30 funds offered in their plan and hoping to find the magic combination that will provide superior returns. And here lies the problem: If you have a 401k plan based on a closed architecture platform, you have termites eating away your returns. The termites are the hidden fees.

Most plan participants are completely unaware of these fees. Based on a 2007 study by the American Association of Retired Persons, only 17 percent of plan participants knew what fees they were paying inside their 401k plan. But, high fees can consume profits at an alarming rate.

The congressional Committee on Education and Labor found that paying just 2.4 percent in higher administration fees can cost a plan one-third of its potential earnings when annual contributions are compounded over 30 years.

This study was done to examine proposed legislation on Fee Transparency. Simply put, high expenses are like termites eating away at your investment returns.
So, where are the termites? The fees inside a 401k plan go to management fees, record-keeping, "shelf Space" fees, trading costs, and commissions paid to sales people who sell the plan (sometimes referred to as 12b-1 fees).

The best pest control is a plan with an open architecture in which all fees are listed up front and there are no hidden costs. Unfortunately, the majority of 401k plans offered are based on a closed architecture platform with hidden fees and limited - often mediocre - mutual fund choices. There are two ways you can easily determine if you have a closed platform: First, nearly all plans offered through an insurance company or a mutual fund family are closed architecture; Second, plans with a mutual funds containing B, C, T or R share classes are also closed. These shares are particularly worrisome because they always underperform their no-load or A-share class counterparts.

By all means, please don't read this article and bang your boss' door down. More than likely, your employer isn't aware of the hidden costs in a closed architecture platform either. Most companies are unaware of the expenses incurred in their plan because the fees are hard to find. You have to carefully read the Summary Plan Description and each Fund Prospectus to find the fees.

In contrast, open architecture plans have complete fee transparency with no sales charges or trailing commissions. Any 12b-1 fee's reimbursements go back to the participants. In addition, the plans typically have access to no load funds, index funds and no-fee institutional share mutual funds. These plans offer a wider range of investment options and have lower investment management and plan administration fees.

Moreover, open plans use an independent investment advisor to satisfy ERISA due diligence requirements, which is a critical safety feature for the investor.
Don't throw away the earnings on your investments. Work with an open architect advisor and keep those termites where they belong - far away from your money.

For employers, there are three key questions you should ask about your plan:
1. Is your plan advisor a fiduciary and completely fee-only?
2. Does your plan provider participate in the industry's standard practice of revenue sharing?
3. Are there 12b-1, sub T/A or finders fees being paid? If so, to whom and for what services.