People with a 401(k) plan will soon have something new to consider when reviewing their statements.
Under new federal rules taking effect later this year (specifically, ERISA section 404(a)(5) for any bureaucratically minded readers out there), employers offering a 401(k) must disclose to participants how much in administrative fees they will be charged under the available investment options. Information also must be provided in an easy-to-understand format that helps individuals compare fund choices and make more informed investment decisions.
What new information can you expect to see? First, plan sponsors must provide a chart that compares the performance of different investment options and details their respective fees. This includes information on 401(k) loads, expenses, surrender charges, and other fund-level expenses. Another requirement is to offer comparative performance data for the market indexes that are most similar to the funds in a specific peer group.
Many 401(k) plans sponsored by larger companies already provide this information in fund fact sheets and performance summaries. But the new rules require the data to be presented in a single, intelligible chart. Most plan sponsors are likely to use the so-called DOL Model Chart for Plan Investment Options, which meets the new disclosure standards.
Plan fees that must be disclosed under the new rules may include account administration, loan, and related charges. Again, many large plans already provide this information. But soon all plans will have to do so, and in a clear, easily understood format.
The investment fund information, including fees and expenses, must be disclosed no later than Aug. 30, with the first quarterly statement (for fees incurred July through September) provided by Nov. 14. Most plan sponsors will start providing this information immediately, so look for it in your first-quarter 401(k) statements.
The new disclosures should help participants make better investment decisions for their retirement. But folks should be aware that the rules do not apply to brokerage windows, self-directed investment accounts, or similar arrangements that let participants select investments beyond those designated by the plan.