401(k) Fees - No Longer Lost in the Shuffle
August 3, 2012
By David Chrestensen
CINCINNATI | The time is finally here, and like a lot of busy business owners who sponsor a retirement plan, you’re probably working hard to understand the new Department ofLabor (DOL) disclosure regulations. One might ask; “Why now, and why more regulations in an already over-regulated world?”
The answer is one word: transparency. The buzzword of the 21st century has finally hit the retirement plan world. The Employee Retirement and Income Security Act (ERISA),approved by Congress in 1974, introduced the concept of regulating the private sector as it funded retirement for employees. While ERISA was implemented to ensure fair treatment of employees, over time many of the fees associated with a retirement plan became imbedded within the plan and were not easily ascertainable by plan sponsors and employees. Most often those fees were charged to the employees, yet most employees were under the impression that they had little or no cost as a plan participant. To ensure that both plan sponsors and employees have the tools to clearly understand all the costs associated with their retirement plan, the DOL adopted the disclosure regulations.
Understanding the new regulations
Under the new regulations, all fees, including direct and indirect fees, must now be disclosed to both employees and business owners. This disclosure may lead to difficult conversations with employees concerning fees. This is a good opportunity to educate and openly communicate with employees.
Not only does the DOL want transparency in fees, but they also want you, as a business owner, to understand your role in the retirement plan as well as the role of the various service providers you may have under contract. Most business owners have no idea of the scope of the liability that they assume when they offer a retirement plan. A major portion of the new DOL regulations are designed to make that issue transparent as well. The initial July 1 service provider disclosure regulations enabled the plan sponsor to better evaluate services received and plan costs, and if the fiduciary duties of fund selection, monitoring and replacement are creating personal liability. Business owners are encouraged to take the time to learn more about the personal liability that exists as a plan sponsor.
New regulation benefits for business owners
For many business retirement plans, the assets of the business owner (and family) comprise a significant portion of the plan assets. Regulations designed to increase transparency and reduce cost can only help them in accumulating more for retirement. Complete disclosure including a better understanding of fees, fiduciary responsibilities and services will help business owners feel confident with the retirement plan they offer and maximize opportunities for accumulating retirement savings.
As you continue to position your company for success this year, work closely with a financial partner who can help you navigate the new regulations, understand all your options and provide you smart tools to effectively educate and communicate with employees. At First Financial Wealth Management, we’ve always operated with transparency. Our clients count on us for consistent, high-quality service and can feel confident knowing we’ve provided them with the full scope of information regarding the features of their plan and fees. We look forward to working with you every step of the way as you seek to ensure your business complies with the new ERISA regulations.