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Fee Disclosure; Will it Work?

Posted on Jul 21, 2011 by  in In the News, Retirement Readiness

The Department of Labor (DOL) announced last week that the effective date for the fee disclosure rules has been pushed back again.  While the delay was not unexpected, it leads me to ask: Is fee disclosure going to help people save more for retirement?  With 408(b)(2), 404(a)(5) and Schedule C, the DOL has stated that it is trying to protect the retirement benefits of employees by giving their employers more information to better assess the value of the services provided. Fee disclosure reporting on Schedule C (which is public information) should foster competition among service providers.

It sounds great, but I fear these initiatives might not be as successful as they could be.  Although certain fees are disclosed on Schedule C, it does not apply to plans covering fewer than 100 employees.  That leaves a huge number of 401(k) plans subject to almost no reporting of fees on the annual Form 5500 series of forms.  Additionally, the current Schedule C does not require enough detail of specific fees that would allow employers to compare apples to apples.

To make it easier for employers to know what they are buying and be more effective at getting employees the best deal, the DOL needs to change the 5500 reporting system to separately and specifically detail fees paid by plan participants for 1.) recordkeeping, 2.) fund management, 3.) investment advice or education, and 4.) retirement plan administration (plan design, compliance, and governmental reporting).  This could result in greater competition and allow everyone to focus on the biggest problem which is inadequate retirement savings by individuals.  How do you think that the DOL could best support retirement readiness?

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