Hidden and excessive fees in defined contribution plans deprive employees of thousands of dollars over their careers. This can delay the timing and degrade the quality of their retirement. Both employers and employees deserve access to disclosures that allow them to compare defined contribution plan fees across plans.
The recent Department of Labor interim final regulations that were issued on July 15 offer some very important provisions that help make 401(k) plan fees more transparent to employers and employees. Importantly, the regulations require the separation of record-keeping charges — which vary based on the number of participants in the plan — from other investment-related charges. This will increase transparency and therefore the negotiating power of plan sponsors, which will result in lower fees for both the plan sponsor and plan participants.
While the DOL regulations are a big move in the right direction, legislation could do even more to increase transparency by including additional elements that are critical to ensuring transparent and effective fee disclosure for all employees. Specifically, legislation can make service provider and participant disclosure a reporting and disclosure obligation, rather than a prohibited transaction issue or fiduciary violation. It can also extend these disclosure rules to non-ERISA 403(b) and 457 plans and their participants. These additions alone greatly increase the number of employers and employees who will benefit from fee disclosure. They are also two steps the DOL cannot take under its existing regulatory authority and they can resolve any questions about the DOL's authority over service provider disclosures.
With more than 80% of Americans at risk of failing to meet their financial needs in retirement, we believe the DOL regulations in combination with new legislation that codifies and expands these disclosures will be a powerful and effective solution to protect and enhance the retirement savings of millions of Americans.
Retirement Strategy and Solutions Leader
Hewitt Associates Inc.