As a 401(k) participant, you should know that April 1 will be a significant date for everyone having a retirement plan. This is the deadline for your plan’s service providers to release written disclosures about services they provided, costs they charged, and their fiduciary status to the plan. Experts call it a watershed event for the 401(k) plan industry, which is well-known for its lack of transparency about costs and services. For a while now, there have been attempts to bury the 401(k)’s administrative costs within either high-expense investment choices or insurance company annuity wrappers without revealing data on the reimbursements paid to providers. That’s why a lot of employers don’t actually know what they are paying for their retirement plan.
Fortunately, now it will change due to the American Department of Labor’s new disclosure rule (Regulation 408(b). According to it, service providers like fiduciaries, investment advisers, record keepers and brokers (in other words, everyone who gets paid in the operation of the retirement plan) must disclose their compensation.
Meanwhile, June 1 might prove even more profound than April 1. The matter is that starting in June, all 401(k) participants must be informed how much they pay each quarter for their plan – not only in percentages, but also in dollar amount of plan-related expenses from their accounts. Actually, lots of participants believe that they don’t pay anything for the services provided for their retirement plan. By the way, this disclosure follows a period in 2008, when many participants experienced severe investment losses.
So it may appear in June that the employers have a much more expensive plan than what they think it is. Of course, the companies would want to know that before their employees get this information. That’s why they are recommended to make sure they receive cost and service disclosures in advance of the April 1 deadline in order to give ample review time before the next deadline. Upon receiving the disclosures, the employers should review and evaluate them to find out whether the cost of the plan is reasonable and the services are appropriate for the plan and satisfy the demands of the fiduciaries and participants. Never forget that the goal of a 401(k) plan is to help employees retire successfully, so the plan should feature reasonable costs and solid education.