By Stephanie Enright

Posted: 07/12/11, 12:01 AM PDT |

With new laws requiring 401(k)s and other employer-sponsored retirement plans to be far more transparent about the costs of investing in them, workers who’ve paid scant attention in the past might actually start reading their statements. When they do, many may encounter terms that are either unfamiliar or unclear, or both.

Following are some key terms found in account or fee-disclosure statements, or mutual fund fact sheets that plan investors — all investors, actually — should understand:

Adviser fees: Paid to advisers for services provided to the retirement plan such as investment-option selection or participant guidance.

Basis points (bps): A unit of value equal to 1/100 of 1 percent. Thus, 10 basis points is equivalent to 0.10 percent.

12b-1fee: Assessed to mutual fund shareholders to covers costs of distribution, marketing and shareholder servicing.

Benchmark: A standard, typically a broad stock-market index, by which the performance of a mutual fund or security is measured. One benchmark commonly used for mutual funds investing in U.S. equities is the S&P 500, while the Russell 3000 Index is used as a benchmark for overall equities.

Distribution fees: Charges are fees participants may incur for such activities as hardship withdrawals or retirement, or separation-of-service distributions made when an employee leaves the job (and the plan).

Expense ratio: Measure representing the cost to the investment firm of operating a mutual fund. It’s determined through an annual calculation. Operating expenses are divided by the average dollar value of assets under management. It’s expressed as a percentage of those assets.

NAV (net asset value): Per-share value of investments such as mutual funds or exchange-traded funds (funds designed to track their underlying indexes as closely as possible).

Sales charge (or load): A front-end load is the charge incurred by individuals when they invest in commission mutual funds. Investors who pull out of a fund frequently must pay another charge, a back-end load fee, when shares are sold or transferred before a designated holding period.

Surrender or transfer charges: Fees insurance companies may assess when a participant withdraws funds from a contract or an employer terminates the contract by withdrawing the plan’s investment before the contract period ends.

Wrap fee: As the name implies, this is an inclusive fee charged to investors/customers that covers administrative services, asset allocation and transaction execution in an investment. It’s generally based on a percentage of the assets under management.

Write to Stephanie Enright by email at senright1@verizon.net or by fax at 310-541-1122.