It's been just over a year since the Department of Labor first required 401(k) service providers to plainly disclose the fees being charged to plan sponsors and participants. But like most things in life, the aftermath of the ruling has had its wins — and its losses. Let’s take a look at some of the victories:
- The average total fees and investment expenses for 401(k) plans are trending downward. This is due in combination to new fee disclosure regulations, which brought a lot of attention to 401(k) fees, and to several lawsuits questioning whether employees pay too much in fees. Experts say the success of such lawsuits has led to lower costs elsewhere because employers fear similar suits.
Why it’s a win: Plan fees can make a huge difference in your retirement savings. According to the Labor, paying 1 percent more in expenses over 35 years could decrease your retirement savings by almost 28 percent. That’s a significant hit to your nest egg that could drastically alter your lifestyle in retirement.
- More 401(k) plans expect to change their investment lineups in the next year, according to a June survey by Cogent Research. Fifty-one percent now plan to make fund changes, compared to 44 percent last year. Linda York, lead author of a report on the Cogent Survey results, said the increase was due to the fee-disclosure regulations as plan sponsors look for ways to reduce plan costs.
Why it’s a win: If your 401(k) plan changes its lineup, not only may you see reduced investment fees, but you’ll have access to a different list of funds, which may allow you to further diversify your overall investments.
But what about the losses?
- A year after the new disclosure regulations took effect, half of 401(k) participants still don’t know how much they pay in plan annual fees and expenses, according to LIMRA’s first-quarter Quarterly Retirement Perspectives report. That means that a lot of participants simply aren't paying attention to what they’re paying.
Why it’s a loss: Knowledge really is power. Without knowing how much you’re paying in plan fees, you’re unable to tell if your fees are too high or if the funds you’re invested in are charging more than you want to pay. Knowing the numbers can help you decide whether to change your investments to benefit from funds with lower fees — as did 22 percent of the LIMRA survey respondents who paid attention to the fee disclosures.
So what does this all mean to you? Information about your 401(k)’s fees may be readily available, but fee disclosure is what you make of it. You need to educate yourself on what it costs to participate in your 401(k) plan so that you can make informed decisions about your retirement strategy. Check with your plan administrator or your employer’s human resources department if you’re not sure where to find your plan’s fee information. If you’re concerned or confused about the fees you’re paying, you may want to contact a financial adviser who can help you sort through the sometimes hard-to-read disclosures.
Scott Holsopple is the president 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.