Nearly eight months after taking effect, the federal government’s 401(k) fee-disclosure mandate, designed to help workers and their employers better understand the costs of their retirement plans, appears to have lost something in the translation.
The new federal rules call for companies that administer 401(k) plans to show workers and their employers exactly what fees are taken from their investment returns to pay for the operation of the programs – fees that can drain thousands of dollars from their accounts through the years.
But some financial advisers say many have ignored or given up on the new disclosures, which are to be sent out annually and, to some extent, included in quarterly statements. Although some disclosure statements present the new fee information clearly, others are lengthy, confusing and full of jargon, advisers say – a big turnoff for the average employee trying to make sense of retirement savings.
The rules have already generated dozens of complaints to federal regulators about alleged violations.
“Most people don’t read those kinds of things anyway,” said Cary Carbonaro, a certified financial planner with United Capital Financial Advisers in Clermont, Fla. “And if there’s anything confusing in it, they’ll just toss it in a pile to go in the trash can.”
The rules’ lackluster effects so far are frustrating personal-finance experts who had hoped they would lead to greater transparency and, in doing so, energize workers’ retirement planning.
Instead, the disclosures have been problematic for investors while creating more paperwork for employers and plan-management companies, said Jason Chepenik, a certified financial planner and managing partner of Orlando, Fla.-based Chepenik Financial, which manages 401(k) plans.
“We handle plans for more than 25,000 (employee) participants across the country, and we cannot find one person that has asked a question about this fee disclosure,” he said. “It’s been like a big waste of time so far.”
The Labor Department rules require 401(k) companies to disclose their fees for plan-management services such as administration, record-keeping and accounting; until this past August, such costs were “hidden” in the expenses charged by each investment fund in a 401(k) plan. The rules also require companies to state each fund’s expense ratio, so employee-investors can see how much of their investment returns are being surrendered to cover operating expenses.
The Labor Department confirmed last month that regulators are looking into nearly 50 complaints nationwide from employers and financial advisers who have reported violations of the disclosure rules. It said officials are trying to determine whether the financial-services companies involved violated the requirements willfully or by accident.
Citing its confidentiality policy, the department would not provide details of the complaints. It noted that the number filed so far is very small, given that there are nearly 500,000 employer-sponsored 401(k) and 403(b) savings plans nationwide.
“The department is reviewing the new fee disclosures as part of the normal investigative and auditing process,” a department spokesman said in a prepared statement. “Our primary focus is to work with employers and service providers to encourage and bring about voluntary compliance with the new requirements.”