Advisor Reminds Plan Sponsors About Fee Disclosure
ROSELAND, NJ, August 29, 2012 -- In what may come as a surprise to many 401k plan participants, the US Department of Labor (DOL) will require as of tomorrow, August 30, the disclosure of all related fees and expenses to every employee in a participant-directed individual retirement plan, like a company 401k plan. Many employees and plan participants are unaware of fees and expenses deducted from their retirement nest eggs which if excessive can contribute to poor overall returns.
“Many employees do not know that fees and expenses are deducted from their 401k plans quarterly. In fact recent surveys indicate that nearly three quarters of the employees nationwide, believe they pay nothing for their retirement plan because it is an employee benefit,” said James Di Gesu CPA and Principal with Roseland, N.J.-based GreenTrac(k) Retirement Advisors, “This disclosure requirement is way overdue. “
The new regulation, section 404(a)(5) of ERISA, requires plan fiduciaries to provide all workers with quarterly statements of plan fees and expenses deducted from their 401k plan accounts, as well as cost and other information about investments available under their plan. The regulation must be adhered to by August 30, 2012.
This disclosure is in addition to another regulation, section 408(b)(2) of ERISA, that was effective last month, requiring plan providers to notify plan sponsors of their fees to operate the retirement plan.
“The downside to these regulations, for employees it may be confusing, but employers must now report on fees and expenses and better manage their 401k company plans. For small and mid-size businesses this additional burden will require changes in financial management practices.” says Di Gesu.
These new regulations indicate that there is a greater focus by the government on control and scrutiny on overall retirement plans, related fees and on plan sponsors meeting their fiduciary responsibilities. There are a number of issues and trends facing companies that offer employee retirement plans:
- Over the last two decades the 401k retirement plan has become the sole source of retirement for many Americans.
- The quality of the 401k plan provided by an employer directly affects an employee's ability to retire.
- Employees seek guidance from their employer, who is viewed as responsible to guide them in achieving a successful retirement, yet surveys indicate that nearly 70% of plan participants are not satisfied with the support they receive from their plan sponsor regarding their retirement plan.
- Employees are poorly prepared on how much to contribute or how to invest their 401k plan.
- The growing importance of 401k's in retirement planning and the volatile nature of the stock market -- make it more important than ever for plan participants to be vigilant about their 401k account.
“In order for employers to help their employees retire successfully some of these trends will have to change, plus the pressure to be compliant and meet fiduciary responsibilities begs the issue as to whether or not most small and mid-sized companies are in a position to function as an employer, a retirement plan manager and a financial advisor. We see a growing role for independent professional retirement plan advisors,” commented Darin Gartland, Principal at GreenTrac(k) Retirement Advisors.
The document that employees will receive on August 30 will be an annual statement disclosing their investment plan options, including performance, as well as related fees. The DOL has recommended that plans use a chart to provide this information. On the plan level any fee expense in excess of $1,000 annually must be included.
The annual fee disclosure statement will not be simple. In fact, it is anything but brief and certainly complex. The document may range from six to twelve or more pages.
The Department of Labor has indicated that excess fees can greatly reduce account values at retirement. By using a retirement plan advisory platform that is a fee-based, as opposed to the more common commission-based programs that broker-dealers and insurance companies generally provide, the plan incurs far fewer expenses, directly benefiting the employee's retirement plan value.
The increased role of advisors to 401k plans is in response to rapidly changing plan sponsor needs and expectations and the regulatory focus on fees and fiduciary issues. “It is important to review the company 401k retirement plan periodically to determine whether fees charged are reasonable, if investments are proper, if the plan matches the needs of the company and employees and to make sure that documentation and administration are ERISA compliant,” Di Gesu added.
About GreenTrac(k) Retirement Advisors
GreenTrac(k) Retirement Advisors specializes in retirement plan management, administration, and education, assisting small and mid-size corporations and their employees with fiduciary compliance, retirement planning, and investment monitoring. As these new regulations bring greater risk to companies that offer this type of employee benefit, GreenTrac(k) Retirement Advisors can perform a review and evaluation of an employer's current retirement plan on a no-cost, no-obligation basis.
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