This week’s CBTV show is entitled, “New Federal 401(k) Disclosure Rules Reveal Internal Fees!”
Despite heavy opposition by retirement plan providers throughout the U. S., the Department of Labor has no plans of moving the April 1st compliance deadline for implementing 401(k) fee disclosure rules. However, plan providers are still waiting for the final rule regarding how they will be required to disclose their fees to plan participants. The Department of Labor expects to finalize this provision by the end of this month. These new federal rules will require plan providers to thoroughly explain how these fees impact 401(k) returns, to both employers, as well as employees who sign up for these plans.
The Employee Retirement Income Security Act (ERISA) is a federal law that was enacted in 1974 to protect the retirement assets of American workers, by implementing rules for qualified benefit plans. These plans include tax-deferred company sponsored plans, such as pensions, and now 401(k)s. These rules were set in place by the federal government to ensure that plan fiduciaries, or those responsible for managing the assets within a retirement account, did not misuse the assets. It also serves as a “guideline” to how plans should be administered and address potential irregularities or “red flags” that could arise in the administration of larger corporate plans. The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) is responsible for overseeing the protection of employee benefit rights. In 2010, following the recession and a significant decline in 401(k) account values, EBSA recognized the need to improve transparency of fees and expenses to workers participating in 401(k)-type retirement plans. New regulations from ERISA were then published, to help workers become more informed about the management fees being deducted from their 401(k) account. Now, in the light of increased disclosure, many employees will learn for the first time just how high some of those fees have been.
The federal government has tried to monitor and regulate the management of securities dating back to the “Securities Act of 1933,” also known as the “Truth in Securities Act.” Before that, it was up to individual states to regulate securities. It was the stock market crash of 1929 that prompted action by the federal government, and since then the government has taken many steps in an attempt to regulate financial institutions in an effort to protect the investment accounts of all Americans. ERISA was established by the government 41 years later in 1974, to further protect all employee’s pensions, and ensure they would not lose their retirement income due to mismanagement of funds. Now, this new federal legislation is designed to protect consumers from losing important retirement savings dollars, due to extremely high, and often times unnecessary, plan administrative fees. During the most recent recession, many employees lost a lot of money in their 401(k) plans, when the stock market declined. At the same time many employers cut back their matching contributions, with some eliminating them altogether. And some employees were even forced to raid their 401(k) plans in an effort to stay afloat during this tough economic time.
Again, I’d like to hear from you on this important topic. What are your thoughts on the new fee disclosure rules? Do you know what kind of fees you've been paying in the past? Sound off in the comment section below!
Until next week, Dump Debt, Invest Wisely, Believe in Yourself and Make it Happen!
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