Survey after survey shows that many workers don't know how much they shell out in 401(k) fees — or that they even pay them.
But can you blame employees? Fees aren't transparent, and account statements usually reflect the balance after the charges have been taken out. Yet employees likely will spend tens of thousands of dollars in investment and other 401(k)-related fees over their careers.
Even many employers aren't sure of the true cost of their plan, although they have a duty to ensure that the fees are "reasonable."
The veil of mystery is supposed to be lifted this year — cross your fingers. This would be a major shift for the 401(k) industry.
The U.S. Department of Labor has drawn up two regulations on fee disclosures. One will require plan service providers, such as record keepers and investment advisers, to disclose all the 401(k)-related payments they receive to employers. Under the other, employees must receive information on the fees they pay for investment management and other services.
The Labor Department is expected to announce the final regulation on disclosures to employers any day now. But there's widespread speculation that the agency will once more extend the deadline — now set for April 1 — so that plan service providers have more time to comply.
Last month, the Securities Industry and Financial Markets Association, citing potential changes in the final rule, asked for another year or more to comply.
But any delay on disclosing fees to employers means that workers will have to wait that much longer to get fee information. And that's outrageous.
The 401(k) has been around for more than 30 years, and clear-cut disclosures on what workers pay to participate in a plan are long overdue.
Workers pay a fee to the money managers of their funds in the 401(k), and many employees may be aware of this. But they could also be paying for record keeping or other plan services, which they might not know about.
It's not like the industry hasn't had fair warning about stronger disclosures.
The Labor Department has been working on these regulations for several years. It published an "interim final regulation" — as close to final as you can get — on disclosures to employers a year and a half ago. And the agency has been talking about fee disclosures since the 1990s.
Surely, any plan service provider worth its fee should have seen the writing on the wall and prepared. Providers such as Vanguard, Diversified, Principal Financial Group and Baltimore-based T. Rowe Price say they're ready to go.
Some big service providers also note that they provide certain fee information to workers now. But plenty of workers, particularly those at small companies, don't get these disclosures.
A survey last year by AARP found that seven out of 10 workers had no idea they pay fees to a plan provider for account maintenance. And nearly one-third said they didn't know enough about the impact of fees on savings.
But the differences can be startling. Take two 25-year-olds with $20,000 each in a 401(k). They make no further contributions, but their investments gain 7 percent annually.
The worker paying an 1.5 percent in fees annually will end up with $170,266 after 40 years. But the other, paying 0.5 percent a year, will have $248,321 at retirement — $78,055 more.
"That's what this is about: trying to improve people's retirement security," says Mary Ellen Signorelle, senior attorney with AARP Foundation.
Just the prospect of this information coming out, Signorelle adds, has prompted some service providers to lower fees in recent years.
Once disclosures kick in, all participants should have a better idea of what their plan costs. Each year, a worker will get a chart of all the investment options, along with their one-, five- and 10-year returns. The chart will include the performance of the investments' benchmarks over that same time frame.
The chart will include the annual expense ratio of each investment, a figure that's always expressed as a percentage. To make it clear how much workers pay, this information also will be reported in a dollar figure for every $1,000 invested. So workers paying 0.5 percent or 1.5 percent annually will see that comes out to $5 or $15 per $1,000 invested.
Regular mutual funds, collective investment funds from banks and funds from insurance companies calculate expense ratios differently, Labor Department officials say. But for this purpose, all must figure expense ratios the same way so workers can make an apples-to-apples comparison.
The chart also will list any fees or sales charges for getting in or out of an investment. And workers will be given a web address where they can find out more details.
Quarterly statements will report the amount of fees that have been deducted from their account for plan-related costs, such as record keeping or accounting. Statements also will say how much a worker paid for other services, such as taking out a loan.