After numerous delays, new U.S. Department of Labor regulations are now set to go into effect July 1, 2012 that will require much more detailed information be conveyed to employers and employees about 401(k) and other employer sponsored benefit plans. After a period of study, the Labor Department determined that the majority of companies offering 401(k) plans do not clearly understand the fees they’re paying to firms who provide and administer their retirement plans. It was even determined that often times many employers are under the impression that their plan is free.
The new rules will require more regular written reporting and disclosure of fees connected with 401(k) plans as well as 408(b)(2) and other employer sponsored plans. The new rules are designed to promote much more transparency and let participants, both employers and particularly employees, understand all their plan fees, know what they are getting for their fees, and compare those fees more easily.
401(k) plan administrators, brokerage houses, investment firms, etc., will now have to create disclosures following user-friendly, uniform guidelines. These disclosures will tell a clear story to employers and employees of all direct and indirect fees and expenses. Many financial firms that provide 401(k) and other employer sponsored retirement plans have been gearing up to put the new reporting requirements into place. Overall, investment firms that offer retirement plans seem to feel the new requirements will be good for participants and plan sponsors, even though small business owners will find it to be more work in the beginning. However, because the disclosures must include both direct and indirect costs, many in the industry admit that they are scrambling to understand the new rules and determine how to clearly determine and define those costs.
To some, this is a decision that is long overdue. There has always been concern that some vendors charge high, even unreasonable, fees associated with their deferred compensation plan products and services.
Company management, also referred to as the plan sponsors, may also be under some new pressures because with these new regulations requiring that they share all plan costs with employees. They will have to justify their plan choices. Employers should be ready to ask some tough questions of their plan providers as they relate to costs and performance, because chances are, once employees see and understand their plan fees, they will be asking those sames kinds of questions of their employers. As plan sponsors, employers can be held liable for overall mismanagement of their employees deferred compensation plans.
Some plan providers readily concede that higher fees will significantly reduce the long-term investment returns on an employee’s savings plan. Keep in mind that Time & Pay works with a professional adviser that has always clearly defined all their fees and charges a fee much lower than the norm. Read more here about our 401(k) administration program.
As we noted above the implementation of this ruling has been delayed numerous times. It appears this time the schedule is set. The Advi$or will keep you posted.