I’m not a huge fan of writing about taxes. Most readers aren’t big fans of reading about taxes. I can’t lie, so unfortunately this post is about taxes. Please don’t go. I promise this is very important information and it will not delve into the dark abyss know as our tax code.
This year, 2012, a new law goes into effect. It surrounds 401(k) plans and is found in ERISA section 408(b)(2). (I promise that is the end of the tax code talk.)
This law has the following new guidelines for plan fiduciaries (they are the ones administering the plan):
- Give workers quarterly statements of plan fees and expenses deducted from their accounts.
- Give workers core information about investments available under their plan including the cost of these investments.
- Use standard methodologies when calculating and disclosing expense and return information to achieve uniformity across the spectrum of investments that exist in plans.
- Present the information in a format that makes it easier for workers to comparison shop among the plan’s investment options.
- Give workers access to supplemental investment information in addition to the basic information required under the final rule.
There are two of the bulleted points I want to discuss. The first is about the investment information. I hope that this information is going to be provided in easy to understand, straight-forward terms. I have had basically every member of my family, most of my friends, and my girlfriend ask me for help and when I show up, they drop their 401(k) plan information and tell me they are lost. They don’t understand it. And based on the questions I see on internet forums, I suspect many others don’t as well. If it were more straight-forward we might have more people investing for their retirements at a young age, or at least do a better job at creating a diversified portfolio.
The other point I want to discuss is the quarterly statement of plan fees and expenses deducted from participants accounts. This is big. As it stands right now, all you really see along the lines of fees are the expenses each fund charges. Trust me, there are huge fees that the plan gets charged and the plan passes these fees along to the plan participants (or investors, or basically, you). When people begin to see how much money they are being charged, they are going to revolt. This depends of course, on them first opening up their quarterly statement and reading it.
It shouldn’t surprise you if at sometime in the near future you receive notification that your company is changing 401(k) plans because of the high fees that the plan charges.
I urge you to open up your quarterly statements for your 401(k) plan and review it for the actually fees you are getting charged. If they seem outrageous (and I think they will be based on what I see), then speak to your benefits administrator at your company and tell them that they need to change plans to find a lower cost plan.
Please comment on what you are getting charged as a percentage below. If I get enough responses, I’ll follow this post up with a summary post.
