How Fee Disclosure Will Impact Your 401(k)

Fees and past investment performance must be spelled out in a chart beginning in 2012.


In a little over a year 401(k) participants will know exactly how much they are being charged to invest in their 401(k) plan. The Labor Department issued regulations last week that will require 401(k) plan sponsors to inform employees of all fees deducted from their retirement account by Jan. 1, 2012. Here’s a look at how the new rules will impact the 72 million Americans enrolled in 401(k) plans.

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Give me a number. The new rules will require 401(k) plan sponsors to inform retirement savers of the dollar amount deducted from their 401(k) plan for fees and expenses at least quarterly. A description of the services provided in exchange for each charge must also be documented.

Spell it out in a chart. To make choosing appropriate investments more straightforward, information about each investment option must be furnished in chart form. The Labor Department’s sample chart explains how each fund has performed since its inception and how much it costs to invest in each fund expressed as both a percentage of assets and as a dollar amount for each $1,000 invested. "For the first time, workers will have at their fingertips important and accessible investment-related information to comparison shop among the plan options available to them," says Secretary of Labor Hilda Solis. These or similar charts will be provided to 401(k) participants when they first sign up for the plan and annually after that.

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Fees for actions. 401(k) participants will be provided with an explanation of any fees charged for administrative services, such as legal, accounting, and recordkeeping charges. Workers must also be informed of fees they will be charged if they take certain actions, such as initiate a 401(k) loan. Any shareholder fees or restrictions on a participant's ability to withdraw money from an investment also need to be disclosed.

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Past investment performance. Workers must be provided with data about how the investments offered have performed in the past. Documentation of historical investment performance including 1, 5, and 10-year returns need to be documented for each mutual fund. The annual rate of return and the term of the investment must be spelled out in simple language for fixed investments. Participants will also be directed to a website for each investment option that provides more details about the fund. “This is not just a website to the mutual fund companies,” says Assistant Secretary of Labor Phyllis Borzi. “It is a very specific website that allows beneficiaries access to specific additional information about these options.” Participants must also be provided with a glossary of terms that explains any investment terminology used in the description.