Study Reveals 401(k) Disclosure Rules Not Helping Investors

In an effort to add transparency to 401(k) administration, the Department of Labor created a new rule in 2012 that required all 401(k) plan providers to disclose “all fees associated with plan administration, investments, and other expenses”[1]. The idea was that with more information about where money was going on the administrative side of the process, 401(k) owners could make better decisions about where, how, and with whom to invest. Unfortunately, it appears that these disclosures are not particularly insightful for most 401(k) owners and that nearly half of them have no idea how much of their money goes to annual fees and expenses even after the disclosures are made.

“Fee disclosure is…very cumbersome,” explained vice president of corporate retirement plans at Personal Capital Tom Zgainer, adding that “participants need an easier way to discover and understand expenses associated with their retirement plans.” About the only thing that the disclosures appear to accomplish is making participants aware that they may be paying fees and expenses. Slightly more than a fifth of all participants believed after the disclosures that they pay no fees or expenses on their 401(k) plans. That number used to be more than a third (38 percent) when the disclosures were not required.

Unfortunately, this issue is a much bigger one than you might think at first. According to NerdWallet, more than 90 percent of American adults underestimate the lifetime costs of their 401(k) administration by about $150,000[2]. The survey included more than 800 Americans. The Department of Labor supported these findings as well, reporting that a poor understanding of fees can result in reduced retirement balances that are as much as 28 percent lower than retirees might expect. How do you keep your retirement-related administrative fees under control? Do you know if you are paying any?

Article written by The Self Directed Retirement Report