Mark your calendars – the end of August, the Consumer Financial Protection Bureau will be unveiling new disclosure guidelines regarding the fees associated with 401k accounts. And if this is the first you’ve heard about it, you’re not alone. It’s been a quiet and rather slow dance as the final details are being worked out and the announcements are being written. Ultimately though, this is definitely all about transparency.
The new rules requiring businesses to provide complete disclosures when it comes their employees 401(k) was recently introduced by the Department of Labor. With so much legal jargon, misleading verbiage and confusing sentence structures, it’s long since past time for the government to rethink those agreements. Enter the CFPB.
Everyone logs into their retirement accounts from time to time, if for no other reason than just to see how much it’s grown since the last log in. We usually notice how much of our annual salary is being applied to the account, various options regarding mutual funds and we might even notice the link that takes us to the fee structure associated with the account. The few times you might have attempted to understand it, you might have found yourself floundering for consistency in the breakdown.
Then, you might notice several fees that are kept “hidden” or at least more difficult to understand. If you’re like most folks, you might find yourself frustrated after a few minutes and then abandon your efforts assuming the fees must surely be reasonable. This is exactly the scenario that prompted the government to step up to the plate and ensure those structures were more streamlined and easily understood.
Here’s where many are going to find that satisfaction of fully understanding their retirement accounts: the new transparency will finally reveal, in easy to understand text, all of those confusing “dead end” costs. The best part, though, is the opportunity to search for better plans with more affordable administrative fees. When a consumer understands how the costs are calculated, he’s then able to mirror those costs to other plans, thereby allowing a bit of comparison shopping. In fact, one analyst is now saying 401k providers and employers have known this law was coming and have been cleaning up their plans so that they look better to the customers once the August date arrives.
In about a month, all of the changes will be in place. Mutual fund companies were required by law to provide the necessary information to employers no later than July 1. From there, employers have several weeks to rewrite the disclosures so that employees have a concise understanding of how much it’s costing them. Further, these disclosures must be in writing and in an adequate font size. Then, those disclosures, whether they’ve changed or not, must be provided each and every year to employers.
It’s important to keep in mind this new law isn’t about eliminating fees, but rather, putting a spotlight on them. That includes revealing how much managers or financial experts are paid, profits associated with the accounts and anything else an employee is paying.
If an employee decides the fees are too high, he’s better prepared to shop for something more in line with what he feels is reasonable. Keep in mind, however, there’s no definitive ratio and plans can vary greatly, making it even more important to do the research.