There was a time when some folks in the food industry didn’t want certain nutritional information published. They claimed consumers would be so bombarded with facts that they either wouldn’t know what to do or wouldn’t bother to find out.
The opponents to nutritional transparency were right in some respects. These days, a lot of people do see helpful nutritional facts on food packaging and they purchase the bad stuff anyway.
And the same may be true when retirement plan participants begin getting clearer details on how much they pay in fees to invest their retirement money.
New disclosure rules by the Department of Labor’s Employee Benefits Security Administration are intended to help workers and the companies that provide retirement plans understand the fees charged to or deducted from individual accounts.
Those with 401(k)s or similar plans should begin receiving the newly mandated information no later than Aug. 30. And more detailed information tied directly to the fees you pay will be sent with your quarterly statement no later than Nov. 14.
So here’s my question to you: What are you going to do with this enhanced fee information? Will you ignore it? Or will you take it seriously and get angry if you don’t like what you see?
“It’s not reasonable to expect service providers to do this for free,” said Peter Kirtland, president, chief executive and founder of ASPire Financial Services based in Tampa, Fla., which provides customizable, low-cost retirement plan solutions. “But people are going to be shocked and outraged when they see how much they pay in fees.”
The Labor Department says a significant benefit of this rule is that it will reduce the amount of time investors spend collecting fee information and organizing the research in a format that allows for comparisons.
It would be great if most plan participants did devote a lot of time to analyzing fee information. They do not, according to AARP.
The advocacy group for seniors polled 800 workers with money in 401(k)s and asked them if they paid fees for their plan. Seventy-one percent said no.
Yet all fund owners are compensated through fees for the costs of running the fund, says Don Blandin, president and chief executive of Investor Protection Trust.
The fees passed on to investors can vary greatly. The day-to-day operation of a plan involves expenses for legal, accounting and recordkeeping services. There could be added fees if the plan provides access to a customer service representative, seminars or retirement planning software. Funds that are actively managed might incur higher fees.
Fees typically run from 0.5 percent to 2 percent a year. “Even seemingly small differences in expenses — say, half a percentage point a year — can make a big difference in how much wealth you accumulate over time,” Blandin said.
Look at this example provided by the Labor Department. Let’s assume that you have 35 years until retirement and a current 401(k) account balance of $25,000 and you don’t make any additional contributions. Over the 35 years, your account averages a 7 percent return. Your account balance will grow to about $227,000 at retirement. Your fees reduce your average returns by 0.5 percent. However, if your fees are 1.5 percent, your account balance will only grow to about $163,000. The 1 percentage-point difference in fees would reduce your account balance at retirement by 28 percent.
“Daylight is a great antiseptic,” Kirtland said. “The most egregious fees have been hidden. Now some people will stick out as charging excessive fees. Once all information is out there it will create price compression.”
Here’s what you can do to begin getting a handle on this issue:
•First, if you’ve been clueless about being charged anything, watch a very informative video posted on YouTube by AARP. Search for “Understanding 401(k) Fees.”
Second, when you get the fee information in August and then more individual details in the fall, compare the information for the various investment offerings in your retirement plan, said Dan Weeks, co-founder of BrightScope, which rates more than 53,000 different retirement plans and provides independent financial information and investment research.
To help you assess your company’s plan, go to www.brightscope.com to find and research the quality of your 401(k) or 403(b) retirement plan. You’ll find some benchmark information to help with your assessment.
Finally, if you think the fees you’re paying are too high, talk to your company about your plan expenses.
“This could motivate participants to ask questions,” said Howard Heller, manager of legislative and regulatory strategy for T. Rowe Price Retirement Plan Services.
Just know fees matter, just like the nutritional information.
Michelle Singletary: firstname.lastname@example.org.
Washington Post Writers Group