Don't wait for employees to come to you with questions about the 404(a)(5) regulation fees that will be appearing on their retirement savings plans. It's time to start preparing to distribute fee disclosures explaining these fees before 401(k) statements are received. Initial fee disclosures were to be given to participants by August 30, 2012 and the first quarterly disclosure was by November 15, 2012.
When employees open up their statements they will see the fees that the plan is paying and what is being charged to their specific account. According to a 2011 study, 71 percent of Americans with a 401(k) don't think they pay any fees.
Stay ahead of employee questions and deadlines by following these suggestions:
Get the message out now. Communicate the fee disclosures to employees. Let your employees know as early as possible that their statements will clearly show the fees paid by the plan. Employees should know what the fees mean and should know that the fees are not new, they are simply more transparent due to the 404(a)(5) regulation. This regulation allows both plan advisors and employers to be open about fees with affected employees.
Customize your form. Use the Department of Labor's (DOL) Employee Benefits Security Administration (EBSA) template to provide multiple types of disclosures that will help employees understand the fees being paid for services rendered and to compare investment alternatives on their own.
Urge employees to visit the new website provided by the Department of Labor to better understand their Retirement Plan Fees.
Discuss the types of fees in your plan. The economies of scale might mean that employees are getting a good deal on fund fees, possibly at lower institutional rates than an individual employee would pay to invest in the same fund through a retail mutual fund account.
Remind employees that 401(k)'s are a good deal. Focus on the keys to financial success - active participation, strong deferral rates, company match, tax deferral, investment education and retirement support - along with fees.
Make certain that your employees understand that these fees are not new. In the past, fees were included in the net investment results but were not as visible as now required by the new 404(a)(5) regulation.
Overall, the new fee disclosures will create a more clear depiction of retirement plans and associated fees, allowing employees to see the benefits of a 401(k) plan.