Participants in 401(k) plans ended 2012 with less than half...

Participants in 401(k) plans ended 2012 with less than half their assets invested in stocks, down from 59 percent at the end of 2006, a Chicago-based Spectrem Group said. Credit: iStock

Businesses and their employees will soon get to see what they're actually paying in 401(k) fees, through a level of transparency that hadn't existed before.

A Department of Labor ruling requires service providers to start disclosing 401(k) fees to plan sponsors beginning July 1.

The ruling is expected to help employers make better informed decisions on the types of plans they provide for employees and to give employees a clearer picture of what they're getting for their hard-earned money, say experts.

"This is a very beneficial change," says Jonathan Anderson, a regulatory expert at the Los Angeles-based Transamerica Center for Retirement Studies, a not-for-profit foundation. "It will make it easier to understand what services are provided and what fees are charged."

The fees aren't new, but many employees are unaware of them because there's never been this kind of uniform exposure.

A recent retirement survey by Transamerica found only 29 percent of workers are aware of plan fees, and among those who are aware, familiarity remains limited.

"It's kind of an urban legend that 401(k) is free," says Tim Slavin, senior vice president of defined contributions at Broadridge Financial Solutions, a Lake Success-based company that's assisting plan service providers in complying with the new disclosure requirements.

Fees generally include administrative expenses, individual service fees and investment related expenses like fund management, says Anderson. See dol.gov/ebsa/publications for more on fees.

In general, average fees can range from 0.75 percent to 2.5 percent depending on the plan, says Ronald Duswalt, a certified financial planner and owner of Old Castle Financial Advisors in Uniondale.

 

Deadlines. By July 1, service providers of the plans must provide the initial fee disclosure to the employer plan sponsor. For most plans, an employer then would have to disclose those fees to employees by Aug. 30, notes Anderson.

And there are quarterly deadlines thereafter, beginning Nov. 14, for reporting certain other fees on individual accounts, such as maintenance fees if a loan is taken against a 401(k), says Anderson. It pays to speak with your financial adviser on your disclosure responsibilities. See dol.gov/ebsa/newsroom for more on the disclosure ruling.

The fee disclosures should create more comparative shopping and force participants to take a closer look at their plans, says Slavin. "People are going to start to open up their statements and really look at them," he says. There will likely be lots of questions, and service providers are prepping for that by planning mailings and retraining their call center staffs.

 

Impact on business. There will likely be more questions for employers as well.

Greg Demetriou, president of Lorraine Gregory Corp., a Farmingdale-based direct-mail marketing firm, says it may create more work for small business owners if employees question whether employers have thoroughly shopped around for the best plan and want them to pursue even more bids.

"Quite frankly, I think we've done the best diligence up front already," says Demetriou, who offers his 32 employees a 401(k) plan. "My money is in there too. I want the best return we could get as well." But overall, he says, the ruling "really can't hurt."

The key is to start communicating with employees about the new fee disclosures, says Duswalt. "There may be a misconception by employees that the employer is charging these fees," he explains. "That's what you're trying to avoid."

Let them know what you're paying and what the employees have always been paying. And also make your investment decisions on fund performance.

"It's not just about the fees," says Duswalt. "It's about what you're making after the fees."

 

73%

Percentage of American workers offered employee-funded retirement plans at work.

 

Source: Transamerica Center for Retirement Studies

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