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New 401K Rules Provide More Transparency for Businesses and their Employees

Published on Dec 17, 2012


Read 'New 401K Rules Provide More Transparency for Businesses and their Employees' at 'Time to Start Up,' the small business blog by BizFilings.
New federal rules are in place that will require 401(k) plan providers to clearly and accurately disclose fee information to their business clients and their client’s employees regarding fees and charges. Specifically, the providers must share information about management fees, administration charges, investment returns and direct costs of the plan with the employers and their employees. The objective is to improve transparency so that businesses and their employees can make better decisions about their retirement funds. While some charges may seem small to an untrained eye, the savings will add up by the time employees cash in Employers have a heightened responsibility under the new rules, according to Rick Ashburn, a financial analyst at Creekside Partners in Lafayette, CA. “Employers must provide that detailed cost information to plan participants, including a statement, at least quarterly, of every expense charged to their employee’s account,” he said. Ashburn added that employers have a fiduciary duty to “shop around from time to time and get proposals from various brokerages.” Corda Investment Mgmt, LLC CEO Bonner C. Barnes expanded on Ashburn’s point, noting that “employers no longer have an excuse for failing to fulfill their duties under the Employee Retirement Income Security Act (ERISA), which prohibits them from entering into arrangements involving high fees. The new rules have teeth, enforcement will rigorous, and an employer could be held liable for damages from lawsuits brought by employees.” Barnes, whose firm is based in Houston, said an exception in the federal rules prohibits providers “from engaging in the fiduciary activity of advising employees on the suitability of specific investments. Therefore the duties and risks stay with the employer. “The impact of the new rules will shine a light on any and all fees.  There will be additional quarterly and annual disclosures regarding actual investment returns, fees associated with such returns, and any direct costs of the plan, provided to both the employer and at the employee level. “ While Barnes says that will be an adjustment period for all involved, the results will be “positive since it will make all plans better, with reduced costs, more objective professional service and improved fiduciary oversight.  Employees should be able to make more informed investment decisions as well.” To read the Department of Labor’s “Fact Sheet” detailing the specifics of the ruling, visit http://www.dol.gov/ebsa/newsroom/fsparticipantfeerule.html