The new 401(k) disclosure rules will soon provide employees with information about the fees and expenses connected to their 401(k) plans. The fees administrators charge plan participants has always been nearly impossible to identify and many employees mistakenly think their 401(k) is free.
How will the law change 401(k) fee disclosure practices?
The law will guarantee that employees receive information about the fees and expenses associated with their investment choices. This information must be provided to the plan sponsors (i.e. employers) by July 1st, 2012 which effectively means that employees will find out no later than August 30, 2012. Specifically, the administrators must disclose the investment management fees, legal fees, and accounting fees. In addition, individual expenses will also be disclosed such as the costs related to taking out a loan against your 401(k) plan which is not uncommon these days.
The new rule also requires that participants receive statements at least quarterly showing the cost of the fees and expenses, as well as a description of what the charges cover. Information about historical investment performance also must be provided, and the information must include a chart to make it easier to compare available investment options.
What changes can I expect to my 401(k) plan?
Many employers are already preparing for the expected backlash from employees following the fee disclosures. As an employee, you should expect that your employer will offer a plan with a low administrative fee. Many employers will likely be able to negotiate lower investment management and administrative fees because of the new disclosure rules.
This new legislation is a positive for employees as they will be able to differentiate between a good and a bad 401(k). Fees will become a significant component in evaluating various plans and administrators will now be held accountable.
Is there a way I can determine what my plan costs me now?
A study completed for the Investment Company Institute found that median fees were 0.72 percent of assets, or about $350 per participant who had an average account balance of $48,522. But, over a 30 to 40 year career, this amount can add up and equate to tens of thousands of dollars paid in administrative fees. Thus, negotiating the fees down by even 10 to 20 basis points can make a big difference.
If you want to learn about plan fees before the new rule takes effect, AARP has a calculator that helps you determine and compare fees associated with particular plans, and calculates the fees’ potential impact on your 401(k) balance when you reach retirement age.
More 401k Related Questions? Ask a Tax Professional Below.
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