As of July 1, 2012, big changes were made when it comes to 401(k) retirement savings plan. Administrators of these plans must now disclose all fees associated with participant’s 401(k) plans. Typically, the problem has been that the 401(k) fee disclosures were ignored or too complex to comprehend, therefore making it difficult for participants to grasp them and realize the total cost.
The new law passed by the Department of Labor is not all-new. Fees associated with 401(k) retirement savings plan were always disclosed to participants but not altogether. Some of the fees were in a prospectus and some were in a third party administrator’s contract. Moving forward, investment companies that administer 401(k)’s will be providing new disclosures to employers that sponsor the plans. These new fee disclosures will be passed on from employers to participants with information about how much they are paying to invest in their retirement plan.
This new law is intended to make it easy for companies to make a decision on what they want to do with their plans or decide which plan sponsor to use. The second important date is August 30th when companies will need to disclose information about these fees to their participants. This is a positive change, as people should know their plans. There is a catch to this change. There is no such thing as a free lunch. If we look at an example; let’s say we have a plan that charges a percentage of assets. One plan is charging you 1% and another is charging you .5%. If you fall into the trap and go with the low-cost retirement savings plan, then you’ll need to look at the returns. What if the plan charging 1% was getting you an 8% return versus the plan charging .5% only getting you a 7% return? The plan charging 1% is the better option.
Our advisors at DLG Wealth Management suggest that people don’t fall into the trap of investing in plans that administer low cost only fees to their retirement accounts. Take some time and some research. Ask the following questions when speaking with your advisor; what is my advisor doing? What is the Manager doing? What have the results been? Who is the third party administrator? These are some of the questions to think about. It’s great to have disclosure as it’s easier for people now to see how much it’s costing them and then they can make their decisions based on that.
The new law passed by the Department of Labor is not all-new. Fees associated with 401(k) retirement savings plan were always disclosed to participants but not altogether. Some of the fees were in a prospectus and some were in a third party administrator’s contract. Moving forward, investment companies that administer 401(k)’s will be providing new disclosures to employers that sponsor the plans. These new fee disclosures will be passed on from employers to participants with information about how much they are paying to invest in their retirement plan.
This new law is intended to make it easy for companies to make a decision on what they want to do with their plans or decide which plan sponsor to use. The second important date is August 30th when companies will need to disclose information about these fees to their participants. This is a positive change, as people should know their plans. There is a catch to this change. There is no such thing as a free lunch. If we look at an example; let’s say we have a plan that charges a percentage of assets. One plan is charging you 1% and another is charging you .5%. If you fall into the trap and go with the low-cost retirement savings plan, then you’ll need to look at the returns. What if the plan charging 1% was getting you an 8% return versus the plan charging .5% only getting you a 7% return? The plan charging 1% is the better option.
Our advisors at DLG Wealth Management suggest that people don’t fall into the trap of investing in plans that administer low cost only fees to their retirement accounts. Take some time and some research. Ask the following questions when speaking with your advisor; what is my advisor doing? What is the Manager doing? What have the results been? Who is the third party administrator? These are some of the questions to think about. It’s great to have disclosure as it’s easier for people now to see how much it’s costing them and then they can make their decisions based on that.
