401k Fee Disclosure May Not Be Enough

It’s not uncommon for workers to prudently set up a 401k retirement savings plan without being aware of the fees they’re being charged for that plan.

The Department of Labor implemented rules in July 2012 requiring 401k plan providers to disclose certain information about the fees they charge plan members.

The rule requires plan administrators to provide certain “plan-related information” to plan participants upfront and annually. This information covers the basic workings of the plan, an explanation of fees for administrative expenses that may be deducted from individual accounts, and an explanation of fees that can be deducted from an individual participant’s account based on some action taken by that person.

Participants are also entitled to quarterly statements of fees charged to their individual accounts.

Since that rule was implemented, the way things have played out show the rule is not that effective at keeping investors informed. In one 2013 survey of plan participants, only seven percent of participants actually took action in response to the fee disclosure, and only half of those surveyed even noticed the disclosure at all.

These survey results are understandable. Even when administrators properly disclose fees, the ways in which they disclose them may leave some participants uninformed. The disclosure paperwork varies quite a bit among different plan providers. Some offer a basic summary, while others offer a stack of dense paperwork.

Certain fees may not be itemized on the mandatory annual fee disclosure notice. The bulk of the administrative expenses for the plan providers are covered by fees taken directly from plan assets. That effectively allocates the fees among the plan participants, with those participants with larger accounts paying a larger share of the fees. Yet participants may not be aware of fees taken directly from plan assets, since they won’t show up on the disclosure statement.

Investment fees can also eat away at participants’ money, possibly more than they might expect. These are the fees charged for management of the investment products, such as mutual fund management fees. Disclosure of these fees is often deep within the disclosure paperwork, and though the rates charged often appear small, they can add up over time.

401k Fees On Trial

Management fees were at issue in a recent Supreme Court case decided in the participants’ favor. In Tibble v. Edison International, the plan participants objected to not being able to choose 401k investments that charged lower management fees.

Edison offered participants the chance to invest only in retail mutual funds, while other types of funds, such as institutional funds, were available with a lower management fee. So plan participants brought a 401k fee class action lawsuit, seeking better investment options.

The trial court and appeals court had denied the participants’ claims as to three of the funds, saying those claims were barred by the statute of limitations. But the Supreme Court reversed those denials, saying that plan providers have an ongoing duty to monitor investment performance and remove imprudent investments, a duty that is not barred by the statute of limitations.

Join a Free 401K Class Action Lawsuit Investigation

If you believe you have been overcharged for 401k fees by your employer’s retirement plan, or that the investments were otherwise imprudent, you may be eligible for a FREE class action lawsuit investigation and pursue compensation for these violations.

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