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New ERISA Rules Provide Transparency to 401(k) Costs

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Many employee benefit packages today feature 401(k) accounts, and what many employees may not know is that the management of these retirement funds cost money. But what many people with 401(k)s may not know is that they are responsible for the payment of fees associated with the management of their 401(k) account and the price of those fees. Under new ERISA requirements the costs of 401(k) fees will be outlined.

The rule update is needed. According to an AARP survey, more than 70 percent of 401(k) plan participants do not believe that they pay for any fees associated with their company's retirement plan. However, employees pay for a whole host of fees. Employees pay for investment management, advisory, administrative and other fees.

The structure of 401(k) plans has led to the misunderstanding. While plan participants pay for the plan and the company does not, the fees were not disclosed to either the participating employee or company. Instead, the fees were a part of the performance of the account and were not outlined.

On July 1, the rule to outline 401(k) plan fees began, but participants may not receive information about the costs of their 401(k) until their statement for the 3rd quarter is issued. Fee information can also be obtained from human resources.

Despite the new rule, the outline of 401(k) fees is not entirely straightforward. While one might expect a line for total fees in their 401(k) statement, such a line will not exist. The fee disclosure will provide the fee amount based on every $1,000 invested in the plan. Based on that information a plan participant will have to calculate the total fee.

Source: The Huffington Post, "Beware: Your 401(k) Plan Has Hidden Fees!" Catherine Hawley, July 2, 2012

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