Employer sponsored retirement plans are excellent resources to have available at work. Unfortunately there are a lot of fees, rules, choices, and complexity involved with them. Often people opt out completely when planning for retirement in order to avoid making the decisions, and far more than necessary of those who opt in get burned. They do not fully understand what they are doing, and they end up losing money. The Department of Labor sees this happening, and they have implemented new rules to help individuals better understand their retirement plan options.
With these new rules the plan sponsors (employers) will have more responsibility to inform their employees of the nuances of the plan. By doing so each participant should know what the administration costs of the plan are. They will know the investment costs of the plan (that means what the internal fees for owning the mutual funds are). The total cost to the participant will be easy to find and to understand. In the past some of the plan providers would try to hid fees. They would give a list of websites and tell the plan sponsor they could go look them up. The sponsor would be responsible to look up each fund, find the internal expenses, and list them out for the employees. This is way too difficult for anyone not in the financial services industry, and most sponsors would ignore their fiduciary responsibility and simply not do it. The new rules will require them to help their employees, and require the plan providers to make it easier to disclose fees.
What does this mean for the investor? It means the plan sponsor should shop for a provider that will do most of the work for them. The top providers in the country already do this, but there are some who are still lagging in their service department. The employer needs to know what their plan is offering, and they need to be able to give the disclosures to the participant. The participant, on the other hand, really has no new responsibilities. They will now have easier access to the mutual fund fees, and they can easily make an informed decision this way.
With most employer sponsored plans, the rules and fees are fairly complex. Fortunately these new regulations have pushed companies to do a better job at disclosing them. The fund itself should not have any fees to the individual, but the mutual funds will. For those who have a 401k or other plan, take a look at these fees. If you are paying over 1.5% on the internal expenses, you are most likely not getting a good deal. Consult with a trusted advisor, and talk to your employer. A smart investor is an informed investor, and the only way the bad companies get pushed out of the business is if the individual will stand up for his or her rights.
I’ve never had an employer sponsored retirement plan at any of my jobs. It really makes me wish I had worked for bigger companies. It’s good to know that they’ve made rules forcing them to be more open about the fees though. Too many companies were getting away with hiding fees from consumers. Now all kinds of industries are having to disclose that kind of stuff up front.
I’m really happy that they’re changing the laws and forcing providers to show this information. Frankly, I think any internal fees over 1% should be avoided but that’s just me…