Some 401(k) Breathing Room
The deadline is extended on DoL regs covering employee fee disclosures.
CFOs with companies offering their employees retirement plans can breathe a bit easier.
Until last week, plan sponsors had a deadline of April 1 for disclosing to employees information about the fees and expenses associated with the plans. But the Department of Labor recently announced an extension of the deadline to Aug. 30. The disclosures are intended to help workers comparison shop among the plan investment options available to them, the DoL says.
The extension should be welcomed by plan sponsors, many of whom have yet to get up to speed themselves when it comes to plan fees and expenses, a recent survey by investment consulting firm Callan Associates finds. About one in eight plan sponsors doesn’t know what types of administrative fees are applied to their companies’ stock funds, while 20% that have funds with revenue sharing don’t know what proportion of their funds pay revenue sharing. (Revenue sharing refers to the practice of investment fund companies rebating some of their fees to other providers of plan services. For instance, a fund company may engage a firm to track individual account activity, and then pay the firm through revenue sharing.) As long as the recipient is not a fiduciary, this is allowed.
"The number of sponsors that are unclear about the status of their plan's fees is remarkable, especially in light of the DoL's new fee regulations,” Lori Lucas, DC practice leader at Callan Associates, says in a statement.
Still, even if plan sponsors can’t precisely identify the fees associated with their plans, many seem to understand that a move from active to passive funds can be a viable way to lower fees. Also according to the Callan survey, plan sponsors that changed their mix of active and passive funds boosted their use of passive funds by 44.8%, which was far more than the 6.9% change in active funds. The increased focus on passive funds is likely tied to growing attention being placed on fees, Lucas also says. In her words: "Use of index funds in DC plans is another way that plan sponsors can manage high fees. This is especially the case in asset classes where it is difficult for fund managers to add value, such as large cap core."
Indeed, passive funds tend to have much lower fees; they generally top out at about 0.2%, versus 1.3% for actively managed funds, this paper from the Wharton School points out.
