Heads up: You may soon be required to provide employees with more info about the administrative and management fees that cut into their retirement savings.
The House Education and Labor Committee has approved the 401(k) Fair Disclosure and Pension Security Act.
It would require all employers to fully disclose all retirement plan fees to their workers.
The bill could pass the House very shortly. If it does, employers would have to provide info on four categories of fees:
- investment management
- transaction, and
- any other expenses.
The true effect of fees
Currently, the industry median for total 401(k) fees is about 1.5%, according to the Investment Company Institute.
How big an impact would those kinds of fees have on an individual’s savings?
An account with a 1.5% fee with a balance of $20,000, earning 7% a year, would be worth $58,000 after 20 years.
The balance of the same account would be worth $70,000 — or 17% more — if its fees were only .5%.
As it stands now, the legislation requires:
- 401(k) plans to disclose, in a quarterly statement, fees taken from a participant’s account
- plan administrators to offer participants at least one low-cost index fund in order to receive protection against liability for participants’ investment losses, and
- workers to get investment advice based on their needs — not the financial interest of those providing the advice.