New Rule Could Reduce 401(k) Fees
I recognize airline checked-baggage fees get your ire up more than high-cost 401(k) fees, but as explained in an earlier post it's 401(k) fees that should really bug you, as they can eat up tens of thousands of dollars of your retirement savings. And on the 401(k) fee front there was in fact good news out of Washington last week. Nearly two and half years after its original proposal to increase 401(k) fee disclosure rules, the Department of Labor issued a final rule last week that has the potential to reduce your 401(k) plan's fees.
The new DOL rule will require a wide array of businesses that provide services to 401(k) and other retirement plans to do a much better job spelling out the direct and indirect fees they collect. Phyllis Borzi, assistant secretary for the Labor Department's Employee Benefits Security Administration explained that the new rule will help the folks running your plan "make more informed decisions about important plan services, the cost of the services and the potential conflicts of interests that their service providers may have." Translation: to stay in the good graces of the federal ERISA law that regulates the retirement plan arena, the folks who make money off of your plan will have to spell out their fees a whole lot better, and that should help the folks running your plan get you a good fee deal. That it took nearly 30 years to make fee transparency standard operating procedure in the 401(k) industry is lamentable, but I guess I should celebrate the better-late-than-never angle. For the record, the new rule does not go into effect until July 16, 2011, one year from last week's announcement.
Marcia Wagner, whose Wagner Law Group specializes in employee-benefit issues says the long-delayed regs are indeed a "significant" win for plan participants. "With more fee transparency we will see a compression in fees," says Wagner. As Kathy Kristof reported, a one percentage point swing in 401(k) fees can reduce your final retirement plan value by 28 percent. Whether it is a 1 percentage point savings or 10 basis points, every smidge your plan can ultimately save by getting on top of its fee payments can impact your retirement savings.
Wagner says DOL might soon come down with yet another rule change that could benefit plan participants. Under ERISA a company that operates a 401(k) plan has a fiduciary responsibility to run the plan in the best interests of participants. DOL is currently mulling broadening the net of who falls under the definition of fiduciary to include consultants and third-party advisors. That will raise the stakes that more folks with a finger in a 401(k) plan must put participants' best interests ahead of their own business interests. Imagine.
Photo courtesy of Flickr user Alan Cleaver, CC 2.0