The types and amounts of fees that are charged by a 401(k) plan can impact on the total return earned by plan participants, particularly over long periods of time. For this reason, it is vitally important for plan participants to know how much they are paying in fees each year (or quarter or month) so that they can make informed investment decisions. The Department of Labor requires all 401(k) plan sponsors to furnish their participants with a prospectus at least once every 14 months that provides a comprehensive breakdown of all fees that are charged by the plan, and when they are charged for non-recurring events, such as moving money from one fund to another. This is fulfilled in the form of a 404(a)(5) participant fee disclosure. The plan administrator will create this document and then pass it on to the plan sponsor. The sponsor then has the responsibility of sending this to each employee in the plan. The disclosure can be sent via email or snail mail. Email is usually the preferred method, but all plan participants have to have either access to a computer or have opted in for email notification. The fee disclosure form is sent to all new participants when they first join the plan and all current participants about once a year. This form must break down three types of fees that are charged within the plan, which are listed as follows: It is relatively easy to find the actual breakdown of all fees that are charged within the plan prospectus. All fees are generally listed in boldface type so that they are easy to find and understand. This allows employees to make more informed investment choices and minimize plan expenses so that their savings balances can grow at a faster rate over time. In fact, the DoL has estimated $14 billion in savings to participants in 10 years as a result of fee disclosure rules. The vast majority of the savings, according to the DoL, come from the increased access to plan information and increased ability to choose lower cost investments. Information is power (or in this case, money)! Fee disclosure rules may be relatively new - but they're in place because of a greater need for transparency. Transparent fees show employees exactly what they're taking home, and ultimately help plan sponsors fulfill their fiduciary duty to act in the financial best interests of their plan participants. That means, first and foremost, reasonable fees for 401(k) services. Employers therefore need to be cognizant of the fees that their investments are charging and monitor whether they are reasonable or not on an ongoing basis.401(k) Fee Disclosure Form
401(k) Plan Design Options FAQs
What is a 401(k) plan?
A 401(k) plan is a retirement plan offered by an employer designed to help employees save for retirement.
What is a 401(k) Plan Fee Disclosure?
401(k) fee disclosure is a dcument that provides participants with comprehensive breakdown of all fees that are charged by the plan, and when they are charged for non-recurring events, such as moving money from one fund to another.
What is the difference between a Roth 401(k) and traditional 401(k)?
With a Roth 401(k), taxes are paid as money is put into the retirement account. With a traditional 401(k), taxes are paid as money is taken out.
Are there other retirement savings plans other than a 401(k) plan?
Alternatives to 401(k) plans include traditional IRAs, Roth IRAs, pension plans (if your employer offers one), and 403(b) retirement plans for employees of non-profit organizations.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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