Why 401(k) Fee Disclosures May Fall Short
When fee disclosures follow the letter of the law.
Nov. 8, 2012— -- Quarterly 401(k) statements have always been vague at best regarding the fees that are being deducted from your accounts.
New federal rules concerning these fee disclosures were supposed to change all this, creating new clarity so that employees could easily see just how much they're paying to whom for what.
But, as is often the case with new regulations, the federal rules aren't having the intended effect — at least not yet. Instead, the large companies that provide these plans are testing the regulatory waters by disclosing fees in account statements in less-than-transparent ways, making it extremely difficult for employees to figure them out.
Doubtless, the issue of whether many plan providers' statement modifications comply with new rules of the U.S. Department of Labor (DOL) will be the subject of extensive back-and-forth between the lawyers for the government and those for plan providers, who will argue that their companies are complying with the letter of the law (if not its spirit).
In the meantime, the tens of millions of employees in these plans still owe it to themselves and their families to get a grip on fees. Because plan providers have made this tough, with some of them gaming the new disclosure rules, most employees should ask their employers about it.
Does your plan have an independent advisor who can sit down with you and look at your fall account statement? If so, take advantage of his or her services to get a handle on your fees. If your plan doesn't have an independent advisor, why not? After all, employee education and assistance is an important part of your employer's responsibilities concerning these plans. This should also be a matter of concern to your HR department because the DOL requires companies to assure that fees are reasonable for the services being provided.
If all this seems like a lot of trouble, sit back and recall the last time you went to four different tire dealers to get the best price. Now ask yourself: Have you been opening and reading your 401(k) statements? This would be a good time to start. Paying higher-than-necessary fees can scramble your retirement nest egg and cut deeply into the resources you'll need during retirement.
Fees aren't the only significant factor determining how much you're able to invest for retirement. Most 401(k) plans are underfunded, meaning that the holders don't accumulate enough money to retire with dignity. Of course, not everyone makes enough to assure this. But many people could be contributing to their plans out of each paycheck by spending less on unnecessary items.
Some 401(k) holders aren't taking full advantage of their employers' matches to their contributions, so they're leaving free money on the table. Again, it's difficult for many to contribute enough because of the way their current, legitimate expenses stack up against their incomes. The point is to do the best you can to get the best possible retirement finance outcome for your individual situation.
In addition to fees coming out of your account, be sure to ask your plan's advisor about the rationale for how the money in your account is being invested. This is a complex process foreign to many people who aren't trained in financial matters, including many college graduates.