DES MOINES, Iowa – Workers with a 401(k) retirement account will soon know exactly how much they’re paying in fees.
The Department of Labor released new rules on Thursday designed to force companies that provide 401(k) plans and services to employers to spell out all the fees charged.
Most people don’t know that more than a half a dozen fees may be charged against their 401(k) account for recordkeeping, administration, investment advisory, brokerage and management services.
In addition, at least eight kinds of indirect fees and expenses could be charged. These are often shaved off the top of the account’s investment gains.
Any service provider paid more than $1,000 in connection with retirement accounts must provide detailed reports on fees, according to the new rules. That includes brokerage services and recordkeeping companies.
The regulations also will affect major providers and administrators of 401(k) plans, including Fidelity Investments, The Vanguard Group, Principal Financial Group and Charles Schwab Corp.
Labor officials will give them a year to plan for the new rules, which have been years in the making. The department first published a notice it intended to make new rules in December 2007. A public hearing was held in 2008.
The department will publish the interim regulations today in the Federal Register and take comments until Aug. 30. It’s specifically seeking comments on the costs service providers will incur by providing a summary statement of fees to companies offering 401(k) plans to workers.
That step is to allow additional comment and could result in some changes before the rules go into effect, said Phyllis Borzi, assistant secretary for the Labor Department’s Employee Benefits Security Administration.
The new rules go into effect on July 16, 2011.
A Principal Financial executive said the company supports the new regulation because it sets a consistent standard of how retirement service providers report fees.
“We believe this new regulation can help financial professionals and their clients as they evaluate service providers and that is positive,” said Greg Burrows, Principal’s senior vice president of retirement and investor services.
The Des Moines, Iowa-based company administers more than 40,000 401(k) plans.
This set of rules is the first step in making fees transparent. It is designed to give employers more information on what they pay for investment options.
A second regulation will be released in a few months that requires employers to provide workers with details about the fees charged for the choices they make in their retirement account.
Forcing the detailed release of fees will benefit millions of 401(k) participants and their families, Secretary of Labor Hilda L. Solis said in a statement.
Rep. George Miller, a California Democrat, who tried unsuccessfully to get fee legislation passed, said the rules are an important step in ensuring that employers have the information on fees in the plans they sponsor.
“With families making difficult decisions to put something away for their retirement, it is vital that these plans work for the benefit of plan participants, not Wall Street’s bottom line,” Miller said in a statement.