Changes in 401(k) Plans

For years, employer-sponsored 401(k) plan participants have received statements that include account balances and changes in values since the prior period. In most cases, fees paid from their account were not mentioned.

Plan sponsors, service providers, and participants face big changes in 2012, starting July 1. That’s when the Labor Department will require mutual funds and plan administrators to disclose details about the fees they are charging employees with 401(k) plans. The long-awaited disclosures cover both direct and indirect compensation that administrators receive – the latter of which often slides under the radar.

A second change involves plan participants directly. Plans must furnish their first set of fee disclosures to participants by August 30, 2012 – 60 days after the July 1st effective date. In addition, fees and expenses paid by participants must appear on the quarterly statement (for fees incurred in July through September) to be furnished no later than November 14, 2012.

A recent AARP survey found that 71 percent of 401(k) participants think they don’t pay any 401(k) fees at all. Seeing these fees for the first time might come as a big surprise to those who had no idea how much they’ve been paying over the years.

Employers need to plan and think about how employees will react to these changes, and how to inform them responsibly to minimize the surprise. Plan sponsors have a duty to evaluate the fees to determine whether they are reasonable and in the best interest of the employees. If uncertain whether the fees are reasonable, your organization might need to benchmark them against what other providers charge.

“In the 401(k) world, benchmarking measures a plan against other plans with the same characteristics in terms of assets, cash flow, number of participants, number of non-participants, average account balance, fees (both stated and unstated), and much more,” says Steven E. Parmelee, President of Westport Benefits Group.

By 1990, 401(k) plans held about $900 billion in assets; by 2011, the figure had swelled to $4.3 trillion.

“The Department of Labor believes that fee disclosure will help reduce the costs of running a retirement plan in the long run,” says Jeff Zobell, Vice President of Alliance Benefit Group – Rocky Mountain. “Not only are the fee disclosure regulations requiring more active oversight by both participants and plan sponsors, they are changing the focus of the conversation to that of retirement preparedness. Participants and plan sponsors will have access to better programs and products because of these lower costs, and a higher account balance at retirement,” he adds.

Transparency is good for employers, participants, and the 401(k) industry.

* Securities offered through LPL Financial, Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Consult your financial professional before making any investment decision.

LPL 1-055224

John Raudat is a Registered Representative with, and securities offered through, LPL Financial. Member FINRA/SIPC.

Please remember to contact Private Advisor Group, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that Private Advisor Group, LLC effect any specific transactions for your account. Please be advised that there can be no assurance that any email request will be reviewed and/or acted upon on the day it is received-please be guided accordingly. A copy of our current written Disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. Copyright 2011 – LPL Financial. All Rights Reserved.


Leave a comment

Filed under Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s