Skip to main content
Home
Segal Benz

Search form

  • What We Do
    • Our Work
    • Who We Serve
  • About Us
    • Team
    • Press
    • Speakers
    • Industry Insights
    • Careers
  • Insights
    • Blog
    • Resources
    • Coronavirus Resources
    • Events
    • Our Approach
  • Contact
hamMENU

You are here

Segal Benz  >  Insights  >  Blog  >  Lifting the hood on 401(k) fees: rich and risky data for your benefits communication
March 06, 2012

Lifting the hood on 401(k) fees: rich and risky data for your benefits communication

Hello, new 401(k) notices! As if the new disclosures required under health care reform weren’t enough to juggle this summer, you need to wrap your head around sharing new data to your 401(k) participants—yes, data about the fees they pay.

You may remember our article last summer suggesting you gear up for a January 1, 2012, implementation. Well, the principles still apply, and in February the final regulations were released. This is complicated stuff. Luckily, Business Legal Resources has done a lot of the legwork for you.

The quick facts

Before you start strategizing about whether you’ll be able to take your summer vacation in the midst of all this change, let’s start with the basics:

… on mandated timing

  • By July 1, as a plan sponsor, you’ll have the raw data you need from your investment partner.
  • By August 30, you’ll need to issue an initial round of disclosures to all participants, assuming you have a plan year that starts January 1. These will highlight plan facts as well as investment fees.
  • By November 14, you’ll need to issue your first quarterly disclosure of fees deducted from an individual’s account July through September, again, assuming you have a January 1 plan year.

… on delivery format

  • To showcase the new investment fee information—annually and quarterly—the DOL has provided model notices.
  • Electronic delivery is possible, assuming you meet the same requirements you’ve always met. Talk to your legal team about how similar these are to other legally mandated notices.

Read a lawyer’s take on the quick facts in this EBN article.

Employees ought to care

You’ve always promoted the 401(k) as the best deal in town, as you should. The match and tax savings should continue to be the headline of this story. Now you also have to explain that your hard work (and economies of scale) mean employees are getting a good deal on fees—but the fees are still there. Here’s the Department of Labor’s example:

You are a plan participant with 35 years until retirement and with a current 401(k) account balance of $25,000. If investment returns in your account average 7%, and fees and expenses reduce your returns by ½%, your account balance will grow to $227,000 by retirement. However, if fees and expenses average 1½%, your account balance will grow to only $163,000. The 1% difference in fees and expenses would reduce your account balance at retirement by 28 percent.

So that’s a pretty scary example, right? Examples work. But to mimic the effect for employees, take a different tack. Show them the differences between funds—especially if they are that stark. And you might want to layer in the investment returns for each of the fees. (It might be that the low-fee fund has modest returns over a 10-year period, as opposed to higher-than-benchmark returns in that high-fee fund over the same 10-year period.)

Even still, some industry analysts aren’t convinced participants will actually read the statements. But a Mint commentator makes a great point: the transparency requirements have caused the industry to pre-empt the regulations with new, lower-cost options. Time will tell.

Nail your key messages

The trick here is to spend time up front on how you’d like to tell this story. Build out a key messages document that:

  1. Focuses on the whole story—company match, tax deferral, retirement support along with fees—and how your fees compare to what’s available to an individual.
  2. References other retirement tools available to employees—especially if you have tools (or advisors) who can show how fees fit with typical investment returns.
  3. Takes into account health care messages that may be introduced at the same time.

Once you set your strategy, it will be much simpler to decide how to pace your messages leading up to the initial announcement through the summer enrollment season.

Other resources

  • Business and Legal Resources report 
  • Department of Labor final rules
  • Model Comparison Notice
Tagged in: 
Health Care

Get Email Updates

Find out instantly when we post new insights to the blog!

SUBSCRIBE

Explore & Learn

Explore our library of free resources

LET'S GO

  • What We Do
  • About Us
  • Insights
  • Contact
  • Privacy
  • California Residents
  • Disclosure of Compensation

Work With Us

We partner with organizations that value their people first.

LET'S TALK

 

Meet the Family

We are proud to be part of the Segal family.

Segal | Segal Marco Advisors | Segal Canada

Segal Benz
180 Howard Street
Suite 1100
San Francisco, CA 94105
415-263-8200
© 2008–2022
LinkedIn Profile
Twitter Profile
Facebook Profile