New Rules on 401(k) Plan Fee Disclosures

Posted on February 27, 2012 by Dan Toomey in Benefits, Best Practices, Human Capital Management

As a plan sponsor, do you know the true cost of your company’s 401(k) plan? You should, because you have a fiduciary duty to ensure these fees are ‘reasonable’. Unfortunately, deciphering your plan’s fees may not be that easy. Service providers can structure fees in a few different ways; for example, a flat dollar amount per participant, an asset based fee, or in many cases, they wrap the fees into the plan’s funds expenses. Often the fees are not very transparent.

The Department of Labor is hoping its highly anticipated  Section 408(b)(2) regulations on fee disclosure will help shed some light for all involved. The new regulations will go into effect on July 1. There are two pieces to the fee disclosure. One piece will require plan service providers, such as record keepers and investment advisers, to disclose to plan sponsors all the 401(k)-related payments they receive. Under the second piece, participants must receive information on the fees they pay for investment management and other services.

This could be a major eye opener to many participants. Some might know that there is a fee to the money managers of the funds, but many are not be aware there are additional fees for the services of the recordkeeper or an outside investment advisor. Over the course of a 401(k) account’s lifetime, these fees can have a major impact on the participant’s overall savings. The new fee disclosure regulations are intended to help make this a lot easier for participants to understand, and there may be lots of questions that follow.

So if you are not aware of your plan’s fees, now may be a good time to reach out to your 401(k) plan’s service provider to get some clarification. You may also want to do some additional research to see if your plan’s fees are in-line with other plans that are similar in asset size. Be prepared with some basic information so that you will be able to answer your participants’ questions when they come.