New 401(k) Fee Rules Slow to Materialize

I RECENTLY CALLED the investment company that runs my 401(k) plan to test how easy (or difficult) it is to figure out what fees I pay for my retirement account.

The first representative I spoke with tried to convince me that I don't really pay anything but short-term trading fees if I sell particular funds. I called a second time, asking specifically about the "management fee" and "expense ratio" on my holdings. A second phone rep described it as a "very small percentage" taken out of the fund each year, but which I wouldn't "ever" see as a charge. OK, so does the expense ratio come out of my account or not? "In a roundabout way," he conceded. Uh-huh.

Most of us don't really know what we pay for our 401(k)s, but we have a nagging suspicion it's a lot more than zero. An AARP survey last year found that 83% of people don't know how much they pay for their plan but nearly the same percentage called fees an important consideration. And they'd be right. According to the Department of Labor, if you have $25,000 in your 401(k) today and over the next 35 years you average a 7% return and pay 0.5% in fees and expenses, you'll have $277,000 at retirement. But add another 1% in fees, and you'll have just $163,000 in retirement. That's a 28% reduction.

The good news is change is afoot. The bad news: We've had to wait a long time — and we may have to wait even longer.

The Labor Department is running on a tight schedule to finalize a new rule on 401(k) fees by the end of this year. The proposed requirement is part of a broader package that would require investment firms to disclose more information on fees to companies that sponsor 401(k)s, as well as for companies in turn to disclose more information to employees.

If this rule is implemented intact, every year your employer would have to give you info comparing the performance of each investment choice offered via your 401(k) compared to their benchmarks' returns over different time periods. Another chart would show each product's annual operating costs and other shareholder fees, such as sales or service charges. (See charts on the next page.)

The regulation would also require your company to give you the actual dollar amount charged to your account every quarter for admin fees, and other costs such as for personal loans.

Judging by the public reaction so far, investors want this rule to go through. The DOL is taking comments through Sept. 8.