|By Richard Burnett, Orlando Sentinel|
The new federal rules call for companies that administer 401(k) plans to show workers and their employers exactly what fees are taken from their investment returns to pay for the operation of the programs — fees that can drain thousands of dollars from their accounts through the years.
But local financial advisers say many Central Floridians have ignored or given up already on the new disclosures, which are to be sent out annually and, to some extent, included in quarterly statements. Although some disclosures present the new fee information clearly, others are lengthy, confusing and full of jargon, they say — a big turnoff for the average employee trying to make sense of retirement savings.
The rules have already generated dozens of complaints to federal regulators about alleged violations.
"Most people don't read those kinds of things anyway," said
The rules' lackluster effects so far are frustrating personal-finance experts who had hoped they would lead to greater transparency and, in doing so, energize workers' retirement planning. Instead, the disclosures have been problematic for investors while creating more paperwork for employers and plan-management companies, said
"We handle plans for more than 25,000 [employee] participants across the country, and we cannot find one person that has asked a question about this fee disclosure," he said. "It's been like a big waste of time so far."
The agency confirmed last week that regulators are looking into nearly 50 complaints nationwide from employers and financial advisers who have reported violations of the disclosure rules. It said officials are trying to determine whether the financial-services companies involved violated the requirements willfully or by accident.
Citing the agency's confidentiality policy, the agency would not provide details of the complaints. It noted that the number filed so far is very small given that there are nearly 500,000 employer-sponsored 401(k) and 403(b) savings plans nationwide.
"The department is reviewing the new fee disclosures as part of the normal investigative and auditing process," an agency spokesman said in a prepared statement. "Our primary focus is to work with employers and service providers to encourage and bring about voluntary compliance with the new requirements."
If investors think a plan administrator has violated the new rules, they can file a complaint with the
It's no surprise the
"There will be a self-compliance period, when people are left to correct their own mistakes," he said. "But before long, the
Despite the rough edges on the new rule's rollout, it has generated some benefits for employers and plan administrators that, in turn, indirectly benefit employee-investors, financial experts said.
"I'm sure some of these companies made it as confusing as possible," said
Also, with plans' management fees now separated from the fees charged by the individual investment funds inside the plans, an employer can now accurately compare the cost of its plan with others, creating a more-competitive market for plan services.
"In some cases, it's almost like a pricing war out there," said Al Baker, a certified financial planner at
Some management companies raised their fees because of the new rules, citing added paperwork, but the overall effect has been positive, said
"The real abuses in fees came from some of the deals that plans had with investment advisers whose firms were receiving money back in the form of marketing fees and other payments," Caldwell said. "Those fees were never broken out, but were hidden inside the plan.
"But now they have to be shown so people will understand it," he added, "and that has caused many companies to get rid of those kinds of arrangements — because they don't want to disclose it."
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Making sense of your 401(k) fees
Once past the jargon of these annual disclosures, look first for the tables that show the investment funds in your plan. There should be two types of tables: One shows the investment performance of each fund as percentage returns for one, five and 10 years, compared with industry benchmarks such as the S&P 500 stock index. The other shows each fund's expense ratio, stated both as a percentage of the money in the fund and as a dollar value for every
Next, look for the section labeled something like Plan Administrative Fees; it may be in the form of a table or just a couple of paragraphs. The best ones tell you right away how much you are paying quarterly or annually to the company that your employer has hired to manage the plan. But that's only one of the fees that has to be disclosed — even the best disclosures will refer you to your quarterly 401(k) statement to see the other fees, which are charged for administrative, record-keeping, legal or accounting services. Typically, these combined fees don't take a big bite out of your return — typically less than 0.2 percent of assets — but because you lose the benefits of compounding over time, they can have cost you thousands of dollars when you retire and start withdrawing your funds. If these fees even approach 1 percent of your assets, you may be getting gouged.
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