401(k) Fee Redux
In "Workers' suit highlights secrecy over 401(k) fees" (Baltimore Sun, November 5, 2006), journalist Eileen Ambrose looks at the effect of nearly a dozen plan-related lawsuits filed against large U.S. companies. Her conclusion? "Regardless of the merits of the lawsuits, consumer advocates and benefits experts say that increased attention to fees is a good thing."
Unfortunately, getting good information about fees is not a walk in the park since no one document tells a complete story. "Workers with sharp eyes and a calculator can generally figure out what they pay by going through the prospectus and quarterly statement, but they will have little luck uncovering the soft-dollar arrangements that could affect their nest eggs." Then there is the fact that there are many kinds of fees, with disparate effects on economic performance.
Edward M. Lynch Jr., a benefits expert with Dietz & Lynch Financial Strategies Group, a retirement plan consulting firm in Massachusetts, offers that no standard exists. Some mutual funds may charge a small or no administrative fee, planning instead to earn management fees. Other arrangements such as revenue-sharing do not show up on Form 5500 and are not always disclosed to plan participants. According to Lynch, "Revenue sharing could be a good thing if it is fully disclosed and reduces costs for workers." Otherwise, "it can be a problem if it influences the decisions on which mutual funds end up in the 401(k)."
Ambrose points out that, absent lawsuits, reform is on its way with the U.S. Department of Labor recommending improved disclosure about fees and the relationship between plan decision-makers and service providers. (In case you missed my blog about Form 5500 revisions and information resources, click here.)
Regarding employees, I am quoted as saying the following. "Ask about fees that you pay, even indirectly, for administration and record keeping" as well as the employer's selection process. "How often does that process get vetted" and on what basis?
With so much attention being paid to the topic of 401(k) fees, this may be the beginning of the end for performance reporting as it exists today.
