Legislation Mandates Improved 401(k) Transparency
You may have missed this heading into Memorial Day weekend, but on Friday the House approved legislation that includes a provision to improve 401(k) transparency. This provision was part of H.R. 4213, The American Jobs and Closing Tax Loopholes Act of 2010.
More specifically, this legislation requires that:
- Before enrollment, workers be provided with basic investment disclosures for each investment option, including information on risk, return, and investment objectives.
- 401(k) service providers must disclose to employers all fees being assessed against a participant’s account, broken down into: plan administration and recordkeeping fees, investment management fees, and all other fees.
- Fees be disclosed for each investment option, both in terms of dollars amounts and percentages.
- A workers quarterly statement list total contributions, earnings, closing account balance, net return, and all fees subtracted from the account.
What do you think? As far as I’m concerned, more information is better. Currently, federal law does not require this sort of disclosure. Hopefully, this sort of improved transparency will bring lower fees.
Update: Assuming this makes it through the Senate unscathed, it would “apply to plan years beginning after December 31, 2011.” In other words, it will be about 1.5 years before it goes into effect.
Modified on June 3rd, 2010 - 8 Comments
Filed under: Retirement, Saving & Investing, Taxes
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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June 1st, 2010 at 6:26 pm
i feel the more transparent this information the more investors will be armed with information. now whether they decide to read it and use it to their advantage is up to them but all in all i think it is a good thing.
from loans, to credit scores, to credit card statements now 401(k) information is good. the less we are in the dark the more we will expect out of companies we do business with and the better it will be for EVERYONE.
June 1st, 2010 at 6:28 pm
Its about time they required this. The fact that we aren’t told the fees on our 401k’s is ridiculous.
June 1st, 2010 at 8:53 pm
I think it’s great that investors will finally have it right in front of them how much they’re paying for their funds and their plan.
June 1st, 2010 at 10:56 pm
More information available, the better it is for the average investor. People need to have access to information on what they are investing in, how they are being charged, and how their investments are performing. Hard to imagine that this information shouldn’t be provided.
June 2nd, 2010 at 11:57 am
My biggest concern is the “plan administration and recordkeeping fees”. As it is I have no idea how much they are or if they are inlcuded in the expense ratio of the funds that I am looking at. To be fair, I would still be taking the 401k match even if I discovered hidden fees.
June 2nd, 2010 at 6:49 pm
Information is good, but a lot of people are going to freak out. Those most vulnerable may even stop saving because they’re paying nasty Wall Street for “nothing”. The poster above was honest enough to admit he/she doesn’t know what recordkeeping and admin are. Many aren’t that honest. They just want to get mad.
For small plans in particular (let’s say less than a few hundred employees or less than 5 million in assets) there will be sticker shock. Hopefully the mass media and bloggers will be responsible and refrain from comparing the Microsoft 401k to “Your High-Fee 401k!!”. Or something less radical than that…
It’s possible to pay less or nothing, but sometimes you get roughly what you pay for. The margins on small plans are pretty slim. Feel free to question your employer or provider, but don’t expect anything for free.
If you are getting killed on fees, it won’t be long before a more competitive provider comes along. Some employers allow you to pay too much, but not many.
Go in with curiosity, not with both guns blazing. (Thanks)
June 4th, 2010 at 9:54 am
The author missed the most important part of this story which is the Department of Labor (DOL) intended to issue detailed service provider fee disclosure regulations this month and participant fee disclosure regulations this Fall. The legislation is unnecessary and ill timed and will cause a tremendous waste of time and resources, translate money, by the government, translate taxpayers, and the private sector.
Thousands of us have been working for the last two years preparing for the DOL’s regulations. This legislation has already delayed those regulations and probably will cause them to never be released and rewritten to fit the legislation.
This legislation is simply one Congressman, George Miller, flexing his political muscle for his benefit and not for the benefit of plan participants or the industry that provides financial products and services to them.
December 22nd, 2010 at 9:10 am
Who cares about transparency. What needs to be legislated is the ability once per year to allow a participant to rollover some or all of their 401k balance into their self-directed IRA. Today, you have to incur some major ‘event’ like quit, get fired, divorce, in order to do so.
The biggest 401k conspiracy out there is that your money is stuck in your employer’s plan with its limited investment choices until you leave the company.
Write your Congressman and Senator!!!