In addition to the “tweaks” that I talked about in this post, more components of the 401(k) landscape are receiving focus. In this particular case, we’re aiming for more disclosure and information about fees for plan participants.
401(k) Fair Disclosure for Retirement Security Act of 2009
Specifically, under this bill, 401(k) plan participants would receive information on risk, return, complete fees, and investment objectives before signing up for a plan. Plus, the fee amount for each account would be disclosed on the participant’s quarterly statement. This may be a huge eye-opener for 401(k) plan participants, as these costs have never been disclosed to participants in the past – at least in any easily-digestible way.
In addition, the administering firm would have to provide the employer (the plan sponsor) with a complete breakdown of all expenses, including administrative fees, transaction fees, investment management fees, and any other fees charged to the overall plan.
The most controversial aspect of the legislation is the requirement that all plans provide at least one low-cost index fund, either indexed to the total stock market, the total bond market, or a combination of both. The managed mutual funds industry has long been opposed to this component, with the argument that the plan sponsors should be free to choose any investment option they desire. I think that the index option is a great alternative, and does nothing to negate the plan sponsor’s ability to choose a plethora of additional investment alternatives.
I can learn from you, you can learn from me - please leave your comments and links!Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 20 years of experience in the industry. . Read more from this author
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These reforms are a terrific idea. I’d like to read more about the proposed legislation. Disclosing all expenses should be a requirement for all SEC registered offerings — no matter how they are delivered to a customer: IRA, 401(k), 529… We have a uniform statement of expenses when you sign up for a credit card — why can’t we do the same for investments (ok, maybe a little more complicated but not unreasonable)
In addition, I think that requiring a 401(k) plan to offer an index fund (or several) is a great option. I wrote about this recently:
http://www.affinefinancial.com/2009/04/10/why-dont-more-401k-plans-include-index-funds/
Please forgive me, because it is self-serving to post a link in your comments, but I thought it reasonably related. (Please let me know if this is a heinous breech of netiquette; I am relatively new to this blogging thing).
Not a problem, Helen. I read your post, and since you didn’t mention any of those unnamed products that make watching a ballgame nearly an R-rated event :-) your link passes muster with me!
Complete disclosure of fees and expenses (among other things) in 529′s is another area of concern. Not that it would have resolved the problem, but it could have helped in the issues Illinois families are facing with the Oppenheimer fund management in the Illinois BrightStart 529 plan.
jb