Being clear about retirement: 401k fees and transparency

One of the responsibilities of the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA), whose goal is “to assure the security of the retirement, health and other workplace-related benefits of America's workers and their families,” is to help employees receive and understand information related to their pension plans, including the 401k fees and expenses associated with the plans. This includes a 2012 Department of Labor (DOL) ruling requiring plan fiduciaries to use “standard methodologies” in reporting return and expense data to plan participants. The purpose, the DOL wrote in 2012, is “to achieve uniformity across the spectrum of investments that exist among and within plans, thus facilitating "apples-to-apples" comparisons among their plan's investment options; and a new level of fee and expense transparency.”

This ruling was put into play because although participants in 401k plans create their own investment portfolios, they didn’t necessarily have the information they needed to make informed ones, including their investment choices and the 401(k) fees and expenses that come along with it. This means companies must give employees the necessary information regarding their investment options and the associated fee and expense information.

For instance, firms must inform plan participants regarding administrative expenses, which include the fees relating to the management of a person’s plan. Accounting expenses are one example of an administrative fee. Furthermore, firms need to share information on individual expenses with plan participants, too. These individual fees stem from a plan participant’s decision-making within the plan.

These previous examples are plan-related expenses. Also, shareholder-type fees or restrictions must also be reported, per the DOL’s investment-related information guidelines. This includes any rules regarding withdrawing from an investment such as a 401k.

In the end, this ruling offers much more than just time-saving benefits, according to the DOL. EBSA estimates the rule change will create $14.9 billion in benefits compared to only $2.7 billion in cost.

Questions about 401k fees? Contact Plexus Financial Services, LLC today by calling 847.307.6222, or visit us at plexusfs.com to learn more about retirement savings and other important financial matters.

REFERENCES

United States Department of Labor, Employee Benefits Security Administration. “Final Rule to Improve Transparency of Fees and Expenses to Workers in 401k-Type Retirement Plans.” February 2012.

United States Department of Labor, Employee Benefits Security Administration. “Organization Chart.”

ABOUT PLEXUS FINANCIAL SERVICES

Plexus Financial Services is located at 21805 West Field Parkway, Suite 300, Deer Park, IL 60010. Securities and advisory services offered through Plexus Financial Services, LLC, Member FINRA/SIPC, a Registered Investment Adviser.

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