Hidden 401(k) Fees Now A Thing Of The Past, But Transparency Isn’t Perfect

Recent whispers regarding hidden 401(k) fees and what your retirement planning may actually be costing you have gotten quite a lot of press lately, and quite a lot of people worried. But never fear, the federal government is here, with a new law that took effect July 1st that requires these hidden fees be disclosed so that you can better plan your retirement plans and shop around for the best option.

By law, you will finally know how much retirement actually costs you.

The law’s disclosure efforts will help those planning for retirement understand how big a bite hidden fees take out of their savings, notes Jean Setzfand, vice president of financial security at AARP, a nonprofit group for retirees. “The purpose is to make something that is not so tangible, tangible to the average person,” said Setzfand according to CNN.

The disclosure will be sent out annually, and will include a list of available investment plans and fund managing fees that go with them (which usually make up about 80% of the total fees). “[I]nformation on these fees has always been available,” said Dave Gray, vice president of client experience at Charles Schwab. “But this is the first time the fee information will be consolidated into a single document and sent to participants.”

According to Time, even employers are usually in the dark about what it costs to set up, run, and manage a retirement fund. “It isn’t unusual to find 401(k) plans with total costs paid by the participant exceeding 3% annually—double what a well-run plan should cost,” they said. That’s one of the reasons the new measures have been put in place.

Currently, there are still some concerns over the new measures. There’s no page limit on disclosure, meaning statement will remain the same length they are now. Providers will also dump information on you – showing fees for every investment fund they offer instead of customizing the report to the products you’re invested in. You’ll have to work through all those numbers yourself. There also won’t be a way to compare fees to other plans or an industry average. You’ll have to use an online retirement tool to figure that out.

Though the new disclosure measures aren’t perfect, they show a step in the right direction, notes Setzfand. “I think there’s always more we can do, but this [disclosure] is a great first step,” he said.