When the U.S. Department of Labor chose to require plan administrators and investment companies to disclose the costs associated with 401(k) plans, the prime goal was increased fee transparency.
With two critical fee-disclosure deadlines on tap this year, experts say, employers and human resource professionals should, first, make sure to communicate early and often with both service providers and employees in the plans. And, second, it might be smart to get professional expertise in sorting it all out from the get-go.
On July 1, service providers will have to comply with more transparent disclosures to employers. Sixty days later, on Aug. 31, employers will be required to provide that information to employees, whether they are 401(k) plan participants or not.
The information centers on fees, expenses and investment-fund performance.
Service providers must provide plan sponsors (usually employers) with all the relevant data regarding fees and investment performance. Plan sponsors must then decipher that data and ensure the providers' charges are "fair and reasonable."
When the August deadline rolls around, that data must be conveyed by employers/plan sponsors to employees in an easy-to-understand way so they can see exactly how their money is being spent and their investments are being handled.
An estimated 72 million participants enrolled in defined-contribution plans will receive this information, according to Jeff Acheson, a partner at Schneider Downs Wealth Management Advisors in Columbus, Ohio.
Some of those participants, he says, will pay no attention, but then, there will be a small percentage of "noisy" employees who will have questions and concerns.
"For employers, I would begin with the end in mind," Acheson says. That means trying to determine to what degree participants will pay attention to the disclosures, noting that many employees probably are not aware they are paying these fees -- and some are not going to be happy to discover that they are.
"Launch a strong communications effort very soon or you could have some problems," he says. "Participants may think the fees are new, for example, but they really are not. They just haven't always been this disclosed before."
Chicago-based Barb Hogg, who leads Aon Hewitt's retirement communication practice, says the fee-disclosure regulations are very good for participants, but that "it's very important to set the stage for this as soon as possible."