Plans perplex small-biz owners

Oct 14, 2012 @ 12:01 am

By Esha Ray

Despite new rules designed to provide clarity on 401(k) plan fees, many small-business owners have difficulty understanding the costs within their plan and can't explain them to employees, according to a recent study by ShareBuilder 401k.

“Our survey results suggest that many small-business owners are in the dark when it comes to their 401(k) plans and costs, demonstrating that our industry has more work to do in disclosing fees transparently and in ways that are easy to understand,” said Stuart Robertson, president of ShareBuilder 401k.

New Labor Department regulations require 401(k) plan sponsors to disclose all fees so that participants can make informed decisions about investment options under their pension plan. Plan providers were required to have distributed documents detailing specific plan fees to business owners by June 30, and business owners to have done the same for their employees by Aug. 30.

But in ShareBuilder 401k's nationwide survey of 500 owners of companies with 100 or fewer employees, only 60% said they have received the documents about their company's retirement plan fees.

Eighty-three percent of the group is unsure of the next steps they should take, and 68% said they could not fully answer workers' questions about the plans.

On average, business owners said they think a 401(k) fee percentage of 4% is a fair rate. It is actually much higher than average.

Mr. Robertson said this misperception represents a danger for employees.

“While paying 0.5% to 1% more in fees may not seem like a lot, over a 40-year career, it can really add up, costing each employee hundreds of thousands of dollars of their nest egg,” Mr. Robertson said. “For every dollar you pay in fees, that's how much less you have invested in the market.”

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