September 12, 2012
Many workers who participate in their employer’s 401(k) savings plan recently received new disclosures from their plan administrators in the mail. The notices are prompted by a Department of Labor regulation that requires plan administrators to provide information about the 401(k) plan to plan participants no later than August 30, 2012.
In a summary of the final rule, the Society of Human Resource Management noted that the Department of Labor issued the rule to allow plan participants and those eligible to participate to “comparison-shop” among a 401(k) savings plan’s choices by providing easily digestible, apples-to-apples comparisons of each of the plan’s investment options.
What do these new and improved 401(k) fee disclosures spell out?
The recently mailed notices should include plan-related information, fees, and expenses, as well as plan investment options. While much of the plan-related information section might cover details that participants already know, some reminders about the employer’s plan specifics might include the option to get savings advice from a professional management firm or details on when payday plan purchases are processed, among other notices.
The fees and expenses section could be a revelation for some participants. Here, the plan administrator might disclose how they take their cut from participants’ contributions to pay for administrative services. The plan administrator might take a “per capita” cut from each participant or charge each participant a percentage of their savings, but the fees and expenses section is where that charge will be disclosed.
In many disclosures, the really helpful information might be buried at the back. The plan administrator will attempt to provide that apples-to-apples comparison called for by the new rule. The disclosure might lay out available investment options in a table format that includes past performance measures and a breakdown of the fees and expenses associated with each option.
Once participants have this information, they should better understand what they are being charged for their retirement investments — a factor that many personal finance experts argue should be taken into consideration when attempting to reach a long-term savings goal.
In the next post: what does more information on investment choices mean for plan participants, their employers, and plan administrators?