New Rules for 401(k) Fee Disclosure

Deductions from your retirement account will soon become more transparent.


Employees with a 401(k) may soon be able to get information about how much they are paying in fees. The Department of Labor issued new rules yesterday designed to increase disclosure of the fees deducted from retirement accounts.

401(k) service providers, including fiduciaries, investment advisers, record keepers, and brokers paid more than $1,000 from the retirement plan, must disclose in writing all direct and indirect compensation received beginning on July 16, 2011 . A written description of the services rendered must be included. Changes to the fee structure will need be disclosed within 60 days.

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Expense information about each investment option must be provided to plan sponsors so they can choose appropriate fund choices for the 401(k) plan. “Improving disclosure will mean that plan fiduciaries can make more informed decisions about important plan services, the cost of the services, and the potential conflicts of interests that their service providers may have," says Phyllis Borzi, assistant secretary for the Labor Department's Employee Benefits Security Administration.

Service providers will be required to spell out any money withdrawn from 401(k) accounts such as sales charges, redemption fees, and surrender charges. They must also disclose the annual expense ratio and a description of other costs such as wrap fees and record keeping services. An explanation of how the compensation will be received must be provided. For example, a 401(k) plan could be billed for the fees or payment could be deducted directly from 401(k) participant accounts or subtracted from investment returns.

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Although the Labor Department considered requiring a summary 2-page document listing key fees, this standardized format was not included in the final regulation. 401(k) providers may disclose fees in separate documents as long as they collectively contain all the required information. “The Department is persuaded that plan fiduciaries may benefit from increased uniformity in the way that information is presented to them,” according to the final ruling. “However, the Department does not want to unnecessarily increase the cost and burden for service providers to furnish required information, especially to the extent such cost may be passed along to plan participants and beneficiaries, unless it is clear that the benefit to plan fiduciaries outweighs such cost and burden.”

Representative George Miller, a California Democrat who authored 401(k) fee disclosure legislation that was passed by the House but not the Senate, says he supports the Labor Department’s rule. “This rule is intended to provide employers with the critical information needed so that workers can get a good deal,” says Miller in a statement. However, he continues to advocate for legislation that would “codify these consumer protections into law”.

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The American Society of Pension Professionals and Actuaries also endorses the new regulations. “Providers now have clear guidance on what disclosures are required and plan sponsors will have the information they need to make informed choices about their retirement plans,” says CEO Brian Graff.

The Labor Department will accept public comments on the final rule until August 30 and may make changes before the rule is implemented in 2011. The new disclosure regulations do not apply to IRA accounts.