www.CUNA.org/newsnow (10/27/10) Do you know exactly how much your 401(k) account costs you? You will, thanks to new rules announced Oct. 14 by the Labor Department (USA Today Oct. 14).
By Jan. 1, 2012, an estimated 72 million Americans who participate in 401(k) plans will have access to much-needed transparency -- in user-friendly formats -- about what their plan fees actually cost and how those fees stack up against other investments. Better yet, the new rules may result in bringing down those fees.
The new rules are intended to educate workers about more than half a dozen fees for things like administration, recordkeeping, investment advising, brokerage, and management services.
The goal of shedding light on fees is to help workers make better decisions. For example, if your operating expense is 2.5%, the new rules require that you also be told that the fee amounts to a cost of $25 per $1,000 invested. Compare that with an investment having an operating expense of 0.19% -- or a cost of $1.90 per $1,000. Bottom line: The lower the fees, the better your return on investment.
Most workers don't realize that high fees eat away at balances over time. A 2006 report by the Government Accountability Office
estimated that increasing fees on a worker's $20,000 401(k) account by just one percentage point could cut the plan's total value by 17% after 20 years (wsj.com
Oct. 14). And for many workers, their 401(k) is the sole source of retirement income besides Social Security (National Public Radio News
Oct. 15). That's why it's so important to compare fees.
Here's what you can expect by January 2012:
- Regular reporting. You'll see all administrative expenses on your quarterly statements, and they'll also be available online.
- Apples to apples comparisons. You'll see an explanation of all fees and expenses as a percentage of assets held and also as a dollar amount for each $1,000 invested.
- Performance data. You'll see information about how each investment option has performed in the past -- including one-, five- and 10-year investment results -- as well as comparisons with appropriate benchmarks.
- Comparison chart. You'll see a chart--or similar format -- that makes it easier for you to compare each investment option.
- Glossary. You'll be given a simple, plain-English glossary of terms so you can understand your investment options.
- Website. You'll be given a website to visit for additional information.