Fees Exposed – 401K Disclosure Coming to You and Your Employees 3rd Quarter

With 72 million participants in the US and a total of $3 trillion in assets, you would think there would be a bonanza of information about the average 401K available.  That has not been the case but it will be so as of July 1, 2012.

Until now, you as the plan provider (plan “sponsor” and possibly contributor in the form of matching contributions to the plan) have only been required to ascertain that the expenses levied for services and investments are reasonable.  On July 1st all service providers must provide additional information about the compensation they receive to plan sponsors – and by August 30 the plan sponsor (you) must make these disclosures to plan participants.

Until now, it was OK to simply assess the reasonableness of investment fees and expenses – going forward you must assess the reasonableness of what the service providers get – even if it’s not from the plan itself.  And this information must be displayed in written reports to participants, quarterly going forward and annually for any investment related fees.

What this addresses is the fact that participants, most of them anyway, don’t believe that these plans cost much if anything. A survey published February 2011 by AARP, for example, found that 71 percent of those polled believed that they did not pay fees on their 401Ks. Six percent said they did not know whether fees were levied.  This means that more that 75% of plan participants are not aware of the costs of their plans!

A more shocking finding is that not only don’t participants know about fees, neither do some 30% of plan sponsors!

As a plan sponsor, you have a duty to pick a good plan and a good provider for your employees, and now you must display the costs to participants.  If this thought of disclosure causes you pain, maybe it’s time to find a new provider.  Some good options for small companies are cited here.

Related Articles

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: