You may not believe it, but there really are government forces trying to help you become better informed about your workplace retirement plan.
I wonder if their efforts are in vain.
The Department of Labor is moving ahead with a proposal for transparency, opening a 90-day comment period to collect opinions on a proposed guide to help employers find fee information in disclosures they get from the investment companies that manage their 401(k)-type retirement plans.
The department felt it needed to step in because companies were having a hard time locating the required fee information, which often was buried in legalese and multiple documents, said Phyllis C. Borzi, assistant labor secretary for employee benefits security.
Call the guide a road map, Borzi said. After watching what was being sent, Borzi said the department became “particularly concerned some employers, especially small employers, may not be reaping the full benefit of fee disclosure regulation.”
Like a GPS device calling out turn-by-turn directions, the guide would direct employers to a specific page or section to easily find fee information.
Why does this matter to you?
Because your employer has a fiduciary responsibility to act in your best interest regarding your workplace plan. To this end, your employer also has an obligation to watch the fees and expenses and to make sure they are reasonable. Folks, this guide directly affects you. The more your employer understands what you are being charged to invest your retirement funds, the more likely the company may negotiate a better deal so that your fees come down. And fees matter to what you ultimately end up with in your retirement account.
I hope you know – and you would know if you opened your 401(k) statements – that fee and expense disclosures were mandated two years ago. You are supposed to receive detailed information about the fees you pay.
Many people don’t realize they are paying fees. According to AARP, which polled 800 workers before the fee disclosure rule went into effect, 71 percent were unaware of the 401(k) fees.
The LIMRA LOMA Secure Retirement Institute looked at the issue before and after the new fee disclosure rule. Despite receiving notice about fees, the research company found nearly four in 10 retirement plan participants didn’t know they were paying fees or expenses. Before the fee disclosure rule, 50 percent of retirement plan participants didn’t know how much they paid in fees and expenses.
Fees and expenses that are passed on to plan participants can vary. Bundled in what you pay are expenses for legal, accounting and record-keeping services. You might be paying for access to customer service help or certain software. Funds that are actively managed might incur higher fees. If you work for a small company, your plan fees and expenses might be higher.
And those fees can have an impact on your bottom line. In an example provided by the Labor Department, let’s assume you have 35 years until retirement and a current 401(k) account balance of $25,000. You stop contributing, leaving the account at $25,000. Over 35 years, your account averages a 7 percent return and grows to about $227,000 at retirement. In this example, fees reduce the average returns by 0.5 percent.
But what if your fees were 1.5 percent?
You would end up with $163,000. That difference of one percentage point reduces your account balance at retirement by 28 percent.
You may not want to take the time to weigh in on Labor’s plan to require a guide to help employers. But at least make all the effort for transparency pay off. Open your retirement account statements. And when you do, spend more than five minutes checking them out.
If you’re not sure you’re getting a good deal, go to www.brightscope.com, which provides retirement plan ratings and research. You can enter the name of plan and get measures to help you see if the fees are reasonable and how they compare to other similar companies.
Ultimately, the proposed rule can help employers agitate for lower fees.