New, easy-to-read statements disclosing plan fees could be eye-opening for many workers

By Tim Grant Pittsburgh Post-Gazette

Workers enrolled in company 401(k) plans soon will be receiving a more detailed version of their quarterly account statements that will show exactly where their retirement dollars are going.

New regulations by the U.S. Department of Labor go into effect Aug. 30 requiring employers to spell out in detail in 401(k) statements about the fees workers are paying to the plan’s managers and the rate of return they are getting on investments.

Company 401(k) plan providers, such as Vanguard and Fidelity, will have to do a lot of the leg work for their clients and provide a summary for each participating employee to employers by July 1.

The information being provided is not entirely new. Currently, it is spread out all over the Internet in fact sheets and in prospectuses provided by the fund for anyone who knows what he or she is looking for and is willing to dig deep enough to find it.

What’s important about this is it’s the first time many plan participants will be able to see things in a simple comparative format to make informed decisions with the investments in their retirement plan, said Sandra Pappa of Buck Consultants, an employee benefits consulting firm based Downtown.

Roughly 72 million workers participate in company 401(k) plans, which have in recent years replaced many company pension plans as the primary vehicle for saving for retirement, putting the burden of investment management squarely on the backs of workers.

And while fees charged by plan providers have a direct impact on the growth of retirement accounts, some participants are not even aware they pay fees for management of the funds.

The transparency policy for 401(k) fees was set in motion in October 2010 by the labor department’s Employee Benefits Security Administration, but the mandatory start date was delayed several times while the agency debated what information would be required.

The final regulations require companies to give workers quarterly statements detailing all the plan fees and expenses deducted from the accounts; to use standard methods of calculating expense and return information so workers can do better comparison shopping; and to present the information in a format that is simple to understand.

We believe this regulation will be very useful for individuals to make informed decisions with investments in their plan, said Ms. Pappa, whose consulting firm will help provide the new statements for employers with 401(k)s not managed by large fund companies.

People don’t save enough for retirement and often make uninformed decisions around how to invest those savings, she said. We believe the new regulations will provide useful tools to make those decisions.

Detailed statements will go out to employees enrolled in company plans by Aug. 30. Fee disclosures, however, must be sent to all employees eligible for the company 401(k) plan whether they are enrolled in the plan or not.

The lag time in getting the new regulations finalized will cause much of the data in the first statements to be outdated. Information contained in the statements employees receive by Aug. 30 will reflect investment performance and fees as of Dec. 31, 2011. But an Internet link will be listed on the statement directing workers to a website where they can get up-to-date numbers.

After Aug. 30, companies will be able to choose their own dates for providing the quarterly statements and information will be current.

Fee disclosure rules apply to all 401(k) plans, but not necessarily all 403(b) plans. Many 403(b) plans — often offered by government agencies and nonprofit organizations — are not governed by the Employee Retirement Income Security Act. Plans not regulated by the ERISA do not have to follow the new disclosure rules.

Cameron Short, a senior vice president for Stifel Nicolaus, a Downtown investment firm that advises large and small companies on employee 401(k) plans, said it’s important for workers to compare apples with apples when examining fees.

For example, the size of a plan can make a difference, he said, adding that employees enrolled in a 401(k) plan with $100 million in assets will likely pay lower fees than workers who are part of a company plan with $1 million in assets.

We want to make sure plan participants understand what they are seeing when the new fee structure is in front of them, Mr. Short said. But it’s going to open up communications. plan sponsors will want to review their plans to see if they can get a better deal with another provider.

The transparency of fees may open up discussions in terms of companies reviewing their 401(k) plans to see if the fees appropriately match their asset base based on industry averages.

Daniel Marsula/Post-Gazette

Tim Grant can be reached at 412-263-1591 or at tgrant@post-gazette.com .