PHILADELPHIA, Sept. 1, 2012 /PRNewswire/ -- If that 401(k) retirement fund that you pay into each pay period is not growing as fast as you like, it might be because of hidden fees no one really explained to you. New rules will require disclosure of those hidden fees, which can add up to sizeable figures, especially in light of the 72 million Americans who participate in 401(K) type retirement plans.
"This rule provides uniform disclosure to workers about what they pay forinvestmentoptions in their retirement plans," said Secretary of Labor Hilda L. Solis. "For the first time, workers will have at their fingertips important and accessible investment-related information to comparison shop among the plan options available to them."
Due to new federal disclosure rules, most 401(k) plan participants will be able to clearly see how much their accounts are being charged in fees for the first time by the end of August. "Participants will be surprised by the size of these fees," predicts business and tax attorney Christopher Ezold (ezoldlaw.com). "In fact, many will be startled to see that they are paying investment management fees at all. The new rules will likely strengthen a trend to reduce fees on all 401 (k) plans as long as participants learn what action they should take."
Under the new rules, the Department of Labor will require plan providers to disclose detailed 401(k) fee information to employers in a new format for quarterly statements that will clearly lay out the fees and actual returns for each investment before taking out any fees. These fees often run more than 1 percent annually, which can become a sizable hit over time, especially when many workers need at least 7% annual return to reach their retirement goals (if not more).
According to a research group,New York City-based Demos, the total fees paid on401(k) plans reduce the total retirement accounts by 30 percent on average.
A partner at Philadelphia-based The Ezold Law Firm, P.C., Ezold agrees that the rule will be economically significant. But he warns that having the information will not necessarily spark a reduction in fees.
"Now that the proverbial curtain has been pulled away, the heightened focus on fees will empower the participants to demand a better return on their investment," says Ezold. "However, participants need to do their homework and take action. These new quarterly reports need to be examined and compared if the plan participants expect to see change."
Ezold suggests getting educated on your fund's expense ratio because higher fees do not guarantee a higher return. Then compare those ratios to other plans and consider shifting money into lower-cost funds.
Christopher Ezold is a partner at The Ezold Law Firm, P.C. (ezoldlaw.com), a Philadelphia-based boutique law firm focusing on business, employment and health care law.
SOURCE The Ezold Law Firm, P.C.
