Employee Benefit Plans: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

401(k) and 403(b) Plans to Disclose Fees Charged to Participants

If you’re like most people, it’s not easy to determine exactly how much you’re being charged for your employee benefit plan fees.  Some expenses are disclosed on your statement, but some are not.  Instead, they’re deducted from earnings, and only the net earnings amount is shown.  New rules issued by the DOL last week will change that.

Typically, plans have two kinds of expenses: administrative costs and investment management fees. Investment management fees are usually charged by the investment company as a percentage of the total assets under management (the value of your account)  These fees range from less than 0.2% on the low end to 3% on the high end.

Starting in 2012, employers will be required to disclose fees and investment performance in a standard, consumer-friendly format.  This is a result of a series of class-action lawsuits filed again large plan sponsors, claiming the sponsors failed to meet their fiduciary responsibilities by allowing participants to be charged excessive fees that weren’t openly disclosed.

The ruling, which touches on other requirements, specifically calls for the following to be made available with respect to fees:
• For investment options that do not a have a fixed rate of return, the total annual operating expenses expressed as both a percentage of assets and as a dollar amount for each $1,000 invested, and any shareholder-type fees or restrictions on the participant’s ability to purchase or withdraw from the investment.
• For investment options that have a fixed rate of return, any shareholder-type fees or restrictions on the participant’s ability to purchase or withdraw from the investment.

According to the DOL website, the estimated cost of this ruling is over $400 million in 2012, due to expenses related to compliance consulting, consolidating information for participants, creating and updating websites, and preparing and distributing disclosures.  However, they estimate the savings of time related to participants attempting to collect this information to be nearly $2 billion in 2012 alone.

Jessica Puckett, CPA, CFE