New Disclosure Rules For 401(K)S
0 Comments | Intelligencer Journal Lancaster New Era; Combined Saturday edition, Jun 23, 2010
You wouldn’t buy a “pig in a poke” unless you first saw it, would you?
But that’s what millions of everyday investors like yourself have been doing with their 401(k) plans.
Many investors are blissfully unaware of the fees they are being charged by 401(k) providers.
The impact on individual retirement plans is significant – a mere 1 percentage point difference in fees could cut a worker’s assets by 17 percent over a 20-year period, according to the Government Accountability Office.
The fees are rarely spelled out for the investor.
Did you know, for example, that companies selling 401(k) plans to employers often have deals with the mutual funds in their plans? These include revenue-sharing arrangements and payments for unspecified fees (charges for marketing, distribution and other services).
These fees are sometimes taken out of the investment returns of the fund holder – that’s you.
Things are about to change, however.
The Labor Department is coming out with new disclosure rules on retirement plans.
The new rules will require companies that provide employers with 401(k) plans to disclose, in writing, all services provided and their related fees, stated clearly.
Also, companies will be required to spell out how they will collect fees, whether by billing the plan, deducting them directly from plan accounts or skimming off a percentage of the plan’s investment return.
The new rules are in response to the uproar among investors, who saw the value of their 401(k) plans plunge with the stock market in 2008 and early 2009 while investment professionals seemingly were enriching themselves through the fees they charged.
At the same time, employers such as Boeing, John Deere and Wal- Mart were being sued by workers, who alleged that the companies failed to ensure that workers were paying reasonable 401(k) fees and that the companies should have known some fees are hidden.
The verdicts in those cases have been mixed, suggesting that the matter ultimately could make its way to the U.S. Supreme Court.
Federal law currently does not require investors to be told of fees taken out of their retirement accounts, so the Labor Department’s action is welcome.
The new rules should make it easier for 401(k) account holders to know what they’re being charged for.
At the same time, companies offering their workers 401(k) plans can more easily shop around, better knowing what services they’ll receive and their cost.
While workers already can find fee information on their 401(k) account websites or by contacting their providers, the new regulations will provide a consistent set of rules everyone in the financial industry can follow.
The new rules will give workers and employers understandable information that can be used to compare plans and options within plans.
The new rules are expected to be released in the next several months, a time frame that should give the industry time to adjust.
Meanwhile, a U.S. House committee is considering legislation that would include 401(k) disclosure rules.
The panel should table the proposal, so that the Labor Department rules have a chance to be put into place and properly evaluated.