The law doesn’t require 401(k) plans to disclose their fees to investors in any comprehensive way.
Is it any wonder, then, that 80% of investors aren’t aware of the fees they are being charged in their 401(k) plan?
That level of ignorance, which was revealed in a study last year by the Government Accountability Office, is unacceptable.
Unfortunately, it also is understandable, given the opacity of most 401(k) plans in the area of fees. That is why retirement plan fee disclosure should be a top priority for legislators.
The Department of Labor is taking steps in the right direction by studying the administrative and investment-related fee and expense information that should be considered by participants when investing their retirement savings.
The Labor Department is using the study to determine the manner in which the data should be furnished to plan participants and who should provide that
information.
Others also are working on improving the transparency of fee and expense information for plan participants and fiduciaries.
‘Concept paper’
The Securities and Exchange Commission, for example, said that it is inviting industry experts to participate in round-table discussions about 401(k) fee
disclosure.
The commission plans to provide a “concept paper” on the issue once the panel discussions are concluded.
Let’s hope that all these discussions lead to legislation that actually serves investors. Our nation’s financial well-being rides on the outcome.
About 50 million Americans invest in 401(k) plans, and most of them have no other kind of employer-paid retirement benefit.
As 401(k) plans have grown in popularity over the past few years, traditional defined
benefit pensions that guarantee a monthly benefit have just about disappeared.
That is why it is imperative for the government to create the proper framework to protect American workers who rely on 401(k) nest eggs — and require easy-to-understand fee disclosure.
In retirement plans, nickels and dimes matter.
To that point, a recent Labor Department report illustrates how a $25,000 investment earning 7% annually grows to $227,000 over 35 years — if annual fees are 0.5%. But if annual fees were 1.5% instead, that same investment would grow to just $163,000 over the same period.
The bottom line is that the average investor should be fully aware of the fees they are paying in their 401(k) plan.
Elizabeth Krentzman agrees. She is a former general counsel of the Investment Company Institute in Washington and now a partner at Deloitte & Touche USA LLP
in New York. She favors disclosure that provides clear and concise information.
“Why can’t we have a simpli-fied disclosure for all [retirement] products that includes the
fees and performance?” Ms. Krentzman said in a recent interview with InvestmentNews reporter Lisa Shidler.
Why not, indeed.
