401(k) Fee Sticker Shock: What to Do After The New Disclosure Statements

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If you're in a 401(k) plan, you'll soon be receiving a quarterly account statement unlike any you've seen before. When your fall statement arrives, probably sometime between Sept. 30 and mid-November, you'll see a whole new format — one that shows how much you're paying the companies that provide investments and services to your plan.

For the first time since Congress laid the groundwork enabling these plans in 1974, all of your fees will be disclosed. Previously, these statements typically showed investment return figures after fees were deducted, but did not show the fees themselves — probably leading you to believe that your investments weren't returning as much as they actually were.

Now, because of new regulations from the U.S. Department of Labor, you'll be able to see how your investments have done before fees are deducted because actual returns and fees will be displayed in separate columns.

The new statement format is one of the requirements in a sweeping new set of disclosure rules from the DOL aimed at helping employees get the most out of their 401(k)s by making companies sponsoring these plans responsible for assuring that fees are reasonable. After all, the more you pay in fees, the less of your investment returns you get to keep.

Employees with other investments besides their 401(k) plans tend to be aware that many mutual funds charge fees. Yet the fees charged by the plan providers, the large insurance companies or brokerages that hold these plans, will stun those who weren't aware that their 401(k)s were costing them anything at all. These fees may run as much as 1 percent annually of the amounts invested, sometimes more.

After getting shocked on the way back from their mailboxes, many people will — and should — go to their HR departments the next day and ask what they're getting in the way of services from these plan providers, as well as other service providers. In some cases, this will be a wake-up call for small and midsize companies that may not be aware of the new rules and their responsibilities under them.

But employees also have responsibilities — to themselves and their families — for making decisions on their plans.

All too often, many of these investors don't put much time or attention into their 401(k)s. Indeed, the implications of the new statement format will be lost on those who don't read their statements.

Yet for those who are aware enough to see the difference but haven't been on top of managing their plan investments, the next step is to move from shock and awe to determining just what you're getting for your fees, and whether you're getting your money's worth. Then and only then can you assess the value of your plan.

You can't figure this out from your account statement alone because it's just data without any context to give perspective. The cost of the plan is determined by your company, because as the sponsor, it hires service providers for the plan, including the plan provider. But knowing how to use it to your maximum advantage can significantly increase the value you get out of it.

If the plan is too expensive or includes substandard services, or both, you and your fellow employees can try to influence your company to change service providers. The new rules implicitly require companies to do this anyway if they determine, as part of a mandatory cost examination, that the fees are too high for the services being provided.

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