Some retirement plan investors have long been unaware they were paying for their retirement plan at all. Actually, you’ve been paying fees the entire time you’ve been invested in your 401(k). Now the Department of Labor has mandated that your plan sponsor must tell you about them.
The new regulation requires employers to provide fee information prior to the first contribution an employee makes to an employer-sponsored plan. After that, disclosures are required annually.
Plan fees are unavoidable, and reasonable fees are good because you’re receiving a service in exchange —plan administration, knowledgeable managers overseeing funds, savvy advisers selecting good funds for your plan, investment advice, online investment trackers, advisory tools, loan processing and other features and conveniences.
Even if the fee disclosure announcement was a nonevent for you, use this opportunity to review your account and ensure you’re making the best decisions for your situation. The additional information you’re provided gives you added exposure to your plan and should serve as a reminder to stay involved. The new rules were made to help you understand everything you get for the fees you pay and make sure you have a consistent way to compare investment options.
What you should expect with fee disclosure.
You’ll receive overall plan-level information in the form of an annual notice as well as a breakdown of the fee’s effect on your specific account. The annual notice probably included historical fund performance and benchmarks. Additionally, you likely saw fees expressed as a percentage of your investments and of your plan’s operating expenses. The account-level information will most likely show up in your upcoming quarterly statement. That disclosure should feature information about administrative fees and charges for individual services.
Every service costs money.
In most cases, retirement plan expenses pay for services that will benefit you as you work toward retirement. The key is to determine if the fees are reasonable.
If you believe your plan has unreasonably high fees, talk to your plan sponsor, your plan administrator and a professional investment adviser to decide whether you’re benefiting from the investment. To decide what’s reasonable, make sure to compare a fund’s expense ratio with other funds in the same asset class.
It’s good to be vigilant regarding the fees that you are paying on your retirement savings. But this vigilance shouldn’t prevent you from investing in tax-deferred retirement plans—like an IRA, your 401(k) or another employer-sponsored plan. Consider the benefits of tax-deferred investing: you’re able to reduce your taxable income, avoid capital gains taxes and experience growth on investments that would have otherwise been taxed.
Fees can be confusing; so don’t hesitate to contact a retirement professional if you don’t understand the expenses you’re facing.
I hope this new age of disclosure continues to get attention, because anything that draws people to review their retirement savings is a good thing.
Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.