Workers will be able to learn how much the fees for their 401(k) plans are draining from their accounts when new disclosure rules go into effect this summer.
Beginning July 1, financial institutions that administer employer-sponsored defined contribution and pension plans will be required to disclose the fees and administrative costs they charge in a user-friendly format. The rules were initially scheduled to take effect this month but the U.S. Department of Labor delayed implementation from April to July to give providers more time to come into compliance.
The 401(k) fee disclosure rules are intended to help participants understand the breakdown of fees associated with their plans — and encourage employers who sponsor these plans to shop around for administrators and compare costs. The hope is that the fees will be reduced and siphon less money out of workers’ retirement plan balances.
Dave Loeper, author of Stop the Retirement Rip-off, says plan providers have been known to sneak in extras like representative fees, administrative fees, distribution fees and expense ratios. When the new disclosure rule takes effect, workers will face some major “retirement plan sticker shock” when they see what they’ve been charged, he told businessinsider.com.
Labor Department officials heightened efforts to make fee disclosures transparent after a series of class-action lawsuits were filed against large employers, alleging they violated their fiduciary duty by allowing employees to be charged excessive, undisclosed fees in their retirement plans. Those lawsuits spurred consumer and investor groups to press for the new regulations.
In the meantime, if you’d rather not wait for the new regulations to take effect to find out what you may be paying for your plan, new tools are available to help you do your own research. If you work for a large employer, CNN Money offers a free tool that shows the impact of the fees in your employer’s plan. If your employer is not in CNN Money’s database, you could use a tool like 401kfee.com just to calculate the impact that a couple of percentage points in fees makes over your lifetime and how that may impact your retirement income.
Scott Holsopple of Smart401k says the new rule will change the way providers lay out retirement plans:
*They’ll have to tell participants exactly what services they’re paying for
*They’ll be requried to disclosure the direct and indirect compensation they get for promoting certain financial products
Though the disclosure rules are three months away from implementation, and tax season just ended, there are still advantages to shoring up your retirement savings. If you’re age 50 or older, it’s a good idea to stash away the maximum, a total of $22,500 ($17,000 annually and a catch-up contribution of $5,500). There are several 401(k) calculators that can help show you how your contributions and employer match add up over time.
Photo by s_falkow via Creative Commons