New 401(k) Rules May Roll Back Administrative Fees On Your Retirement Savings
Some relief may be forthcoming on those 401(k) fees that can bleed you retirement fund: Rules from the U.S. Department of Labor go into effect next month that could make those charges more transparent–although your employer could still be in the dark about the regulations.
Regarding the new 401(k) rules, KansasCity.com observes that “The new rules will bring consistency to the disclosure process while making it easier for consumers to understand the fees they are paying.”
Your quarterly 401(k) statement going forward should show the fees charged against your account, which should give you an idea how much of a hit your nest egg is taking.
Employers will also have to determine the reasonability of these 401(k) fees, and if not, possibly change service providers.
SmartBusiness.com further explains the ramifications of the 401(k) rules:
The new rules from the federal Department of Labor (DOL) require employers to determine, and all service providers to disclose, all fees and the services they cover by July 1. Though the DOL has sent plan sponsors reams of documents outlining its requirements under the new rules — and listing fines that could befall them for not complying – many of these employers remain unaware of this deadline.
The Inquisitir has previously reported pursuant to a government study that many employers themselves have no idea what 401(k) plan providers, investment advisors, brokers, or other financial institutions charge by way of fees which can subtract thousands from the value of your retirement savings plan. These charges are often buried in boring, incomprehensible fine print.
In general, the objectives of these new DOL regs appear at least on face value to be more transparency, lower fees, and better hands-on management of your 401k plan.
Monitoring fees has taken on greater importance because of the poor rate of return on most 401(k) funds because of the down economy. As the New York Post describes…
The “lost decade” of the first 10 years of the century, in which the stock market was basically unchanged, combined with fund managers raising fees to keep profit margins on the lower returns and lower balances, have huge consequences for average Americans saving for retirement.
The SmartBusiness website also points out that the new rules, while aiming to “stanch the unnecessary hemorrhaging from employees’ retirement accounts” could, however, be a double-edged sword:
The rationale for preventing excessive fees is to enable employees to accumulate more wealth to get them through retirement. Yet if employers fail to also focus on services, plans won’t be able to serve participants by delivering the best returns for their particular situations: their age (time horizon for retirement), retirement goals, risk tolerance, retirement goals and existing wealth.
Monitoring fees has become even more an issue because of the poor rate of return in mutual funds in the recessionary economy.
Other than in the public sector, the 401(k) retirement plan has all but replaced the traditional, defined benefit pension plan with 72 million or more workers in total embracing the system.