Clear disclosures of 401(k) fees to be required
Employees with defined-contribution pension plans such as 401(k)s are entitled to significant new disclosures of the fees and expenses charged to their accounts, under a new federal regulation. The following disclosures are required before an employee can first direct an investment, and then annually thereafter:
- Plan-related information. This includes how the plan works, any administrative fees or expenses that apply to all participants, and any fees or expenses that apply to that particular individual based on his or her actions. Also, participants must receive statements at least quarterly showing actual charges to their accounts.
- Investment-related information. This includes information about historical investment performance (one, five and ten-year returns), comparative information from an appropriate broad-based securities market index, total annual operating expenses, fees or restrictions on buying or withdrawing from an investment, website addresses for updated information, and a glossary of terms.
A model comparative chart and a fact sheet are available from the Department of Labor. The rule takes effect for plan years beginning on or after November 1, 2011. For calendar year plans, this means the rule is effective on January 1, 2012. (75 Fed Reg 64910, Oct. 20, 2010).
Tips: Fees and expenses are a necessary part of investing, but most employees dont understand the resulting impact on their investment choices (and thus their retirement balances). If you sponsor a defined contribution retirement plan for your employees, work with your plan administrator and investment advisers to ensure the required disclosures are compiled and provided.