The House of Representatives approved legislation that aims to make 401(k) fees more transparent on Friday. The bill would require 401(k) service providers to list all fees subtracted from employee retirement accounts. Here’s how the Defined Contribution Fee Disclosure Act of 2010, if it becomes law, would impact your 401(k).
New 401(k) statements. Each worker’s 401(k) statement would list total contributions, earnings, closing account balance, net return, and all fees subtracted from the account in dollars or as a percentage. The proportion of the account in each asset class and the expenses associated with each individual 401(k) investment would also need to be conveyed to employees. 401(k) statements must be provided at least quarterly by companies with 100 or more employees. Smaller companies could mail 401(k) statements annually.
Plan fee comparison charts. 401(k) account holders would also be provided with charts comparing the service and investment charges that will or could be levied based on the investment options chosen. Charges that would need to be listed include annual operation expenses, plan administration charges, record keeping costs, plan loan origination fees, and charges that vary based on the investment option selected, such as loads, commissions, brokerage fees, exchange fees, redemption fees, and surrender charges. The chart would also list historical returns, net of fees and expenses, for the previous year, 5 years, and 10 years and compare it to the historical returns of a similar benchmark or index over the same time period.
Detailed investment information. Retirement savers would receive detailed information about each 401(k) investment option including the investment strategy of the fund, risk and return characteristics, and the name of the fund’s investment manager. Investors would also be informed whether the fund is meant to be a stand-alone investment and whether the fund is actively managed or passively managed in relation to an index.
Employer information. 401(k) service providers would need to provide more detailed fee and transaction information to employers and disclose the manner in which those fees are collected. Employees will be able to receive this information upon request from their company.
Penalties for violations. Service providers earning $5,000 or more in annual revenue that fail to disclose 401(k) fees would be levied a civil penalty of up to $1,000 for each day of noncompliance up to 10 percent of the assets of the plan or $1 million if the legislation is adopted.