Retirement plan fee disclosure is coming soon | submitted by Scott Mosley

In an ongoing effort to help employees and employers understand the costs associated with corporate retirement plans, the Department of Labor has issued a set of rules regarding disclosing fees charged to 401(k)s and other retirement plans. The rules are scheduled to go into effect on April 1, 2012.

Companies that provide services to corporate retirement plans, like 401(k) plans and profit-sharing plans, will be required to disclose the fees that are charged to the plan. Likewise, the employer will be required to notify the plan participants of those fees.

The reality of the retirement plan industry

I applaud this legislation. Unfortunately, too many salespeople in the 401(k) industry have hidden or at least obscured the fees they charge for too long. 

I was recently having coffee with a colleague from a local accounting firm. She relayed a story about a conversation she had with a client. The client had insisted that his firm was not paying any fees to its 401(k) service provider. 

My colleague probed this line of thought – how did he know he was not paying any fees? The answer – the 401(k) salesman told him so.

Really? You have got to be kidding! There are no free lunches in this world.

You must consider fees

The Employee Retirement Income Security Act of 1974, as amended, requires employee benefit plan fiduciaries to act solely in the interests of, and for the exclusive benefit of, plan participants and beneficiaries. As part of that obligation, plan fiduciaries have to consider cost (along with other factors) when choosing investment options for the plan and selecting plan service providers.

On April 1, 2012, service providers will be required to disclose those fees in a manner that does not require a degree in forensic accounting to understand.

Typical fees

Most plans are charged four different types of fees. These include:

  1. Investment product fees
  2. Plan administration expenses
  3. Plan start-up or conversion charges
  4. Plan termination charges

No free lunch

I make a living by providing investment and fiduciary services to retirement plans. If I did not charge a fee for those services, I would not have a business.

However, I am a firm believer that you should get what you pay for – and you should know what you pay for.

If you do not know what your retirement plan pays in fees or do not know how that compares to other plans, you should ask.

Scott Mosley is the owner and principal consultant at Mosley, An Independent Investment Firm. He offers securities and advisory services as an investment adviser representative of Commonwealth Financial Network, a member firm of FINRA/SIPC and a registered investment adviser.

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