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 through the years.
But some financial advisers say many 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 Cary Carbonaro, a certified financial planner in Clermont, Fla., with United Capital Financial Advisers. “And if there’s anything confusing in it, they’ll just toss it in a pile to go in the trash can.”
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 Jason Chepenik, a certified financial planner and managing partner of Orlando, Fla.-based Chepenik Financial, which manages 401(k) plans.
“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 Labor Department rules require 401(k) companies to disclose their fees for plan-management services such as administration, record-keeping and accounting; until this past August, such costs were “hidden” in the expenses charged by each investment fund in a 401(k) plan. They also require companies to state in dollar terms each fund’s expense ratio, so employee-investors can see how much of their investment returns are being surrendered to cover operating expenses.
The agency confirmed this month 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 were 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 was 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 U.S. Employee Benefits Security Administration by calling 866-444-3272 or going online to http://askebsa.dol.gov.
It’s no surprise the Labor Department is taking a cautious approach to enforcement of the fee-disclosure rules, given their newness, said Bryant Kirk, chief operating officer of the Newport Group, a Heathrow, Fla.-based company.
“There will be a self-compliance period, when people are left to correct their own mistakes,” he said. “But before long, the Department of Labor will start auditing these things, issuing opinions and interacting with people to create more regulatory enforcement.”
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.
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 second shows each fund’s expense ratio, stated both as a percentage of the money in the fund and as a dollar value for every $1,000 invested. The best expense ratios run about 1.0 percent or less.
Expense ratio, however, is not the only factor to consider: You may have funds with low expense ratios but weak returns — or even losses. That may be a sign to look at other funds in the plan, perhaps with higher expense ratios but much better returns. Ideally, you want consistently good rates combined with low ratios. High ratios plus poor investment results may mean you’re being gouged.
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, combined fees won’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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