The regulatory and legal pressure on employers to tightly monitor their 401(k) plan costs has always been strong, but employers may soon find a little help. At the same time, however, small employers must be aware that the federal judiciary is still paying close attention to whether or not employers are adhering to all regulations.
A recent survey of small companies (defined as 100 or fewer employees) revealed the following, with respect to plan fees. The answers are expressed as percentages of total survey responses:
- 17 percent did not receive a fee disclosure statement from their plan provider
- 13 percent received the statements but found them too difficult to understand
- 60 percent considered their fees less than “very reasonable”
- 35 percent have not compared their 401(k)s to other plans in their market
- 14 percent believe total plan fees in the 4-6 percent-of-assets range is fair
- 13 percent believe total plan fees in the 7-10 percent range is fair
- 17 percent say they don’t know what a fair fee would look like
The survey, conducted on behalf of ShareBuilder 401k, shows some small employers are not completely fulfilling their fiduciary obligations. This is true even though it has been nearly two years since the Department of Labor’s fee disclosure rules took effect. Most employers should have already received two cycles of fee disclosure documents by now, alerting them to possible red flags.
To help those employers who find the statements undecipherable, the DOL has issued proposed regulations that require 401(k) vendors to furnish a roadmap to their fee disclosure statements. According to the DOL, the locator directory will tell you where to find:
- The description of services to be provided
- The statement concerning services to be provided as a fiduciary and/or as a registered investment adviser
- The description of all direct and indirect compensation, any compensation which will be paid among related parties, compensation for termination of the contract or arrangement, as well as compensation for recordkeeping services
- The required investment disclosures for fiduciary services and recordkeeping and brokerage services, including annual operating expenses and ongoing expenses, or, if applicable, total annual operating expenses.
These regulations might not take effect until next year. Meanwhile, how you administer your 401(k) plan is critical. It must be administered consistently. Schedule a meeting with Filler & Associates to discuss your particular situation in detail.