October 14, 2010 was an important day in the retirement plan industry.  The Department of Labor released its long awaited, groundbreaking final 401(k) Fee Disclosure ruling.  The goal of this ruling is to equip the 72 million workers saving in 401(k) plans with the information they need to understand what they are really paying.  This is no easy feat in an industry where carefully hiding fees has been regarded as an industry standard and completely acceptable by some.  But take heart, there is light at the end of this tunnel of confusion and deception.  Soon this ruling will require retirement plan providers to disclose to participants what they are paying in fees on their quarterly statements. 

Secretary of Labor Hilda Solis is quoted as saying “Workers can now make apples to apples comparisons among their plan’s investment options.”   

Why are fees so important?  Research by the DOL has shown that paying just an extra 1% in fees over a lifetime of saving can result in the reduction of overall savings by approximately 28%.  Something that sounds so small can have a huge impact over time.  Consider this: we never know what our investments may earn, but we do know what we are paying.  Taking steps to reduce the known expenses can really help participants’ balances in the long run because fees eat up returns.

These new rules will also require the plans to provide participants with easy access to a glossary of terms that will help them understand what they are reading.  In addition, investment performance data must be available with 1, 5, and 10 year returns and also comparisons to appropriate benchmarks.  Further standardization will require fees to be expressed as a percentage of assets as well as a dollar amount per $1000 they have invested.  This way, comparisons between plans can be made as well.

"We are giving workers the tools they need to make the best possible decision about investing the nearly $3 trillion held in their 401(k)-type plans. Now they will have information about different investment options to help them make wise decisions," said Assistant Secretary of Labor for EBSA Phyllis C. Borzi.

For those of you who have not been following this movement like we have, our experience has shown that fees can be so complicated that unfortunately even plan sponsors cannot always extrapolate what the costs to run their plans actually are.  It’s time fiduciaries who aren’t sure about their plan’s fees pay closer attention to these details and truly understand what they are paying.  Typical fees cover everything from recordkeeping and administration to investment fees and compliance work.  Participants don’t have a shot at understanding until they have access to the information. Until now, the law hasn’t mandated it, so most providers have not disclosed it.     

At Acropolis Retirement Plan Solutions we think this is a positive step in the right direction, and frankly long overdue.  Having always believed in and provided full fee disclosure, I personally think it’s time everyone play by the same rules, respect people and treat them fairly. 

Kristen Donovan

Manager, Acropolis Retirement Plan Solutions