For the past few years, the Department of Labor has wrestled with what kind of fee disclosure requirements to impose on 401(k) plans. Currently the DOL has several pages of fiduciary rules that, if adhered to, will protect employers and plan administrators from potential liability. While these rules are voluntary, most companies make certain they adhere to them. Otherwise, they could be faced with fiduciary lawsuits from employees.
Next year, the Department of Labor will require investment companies to individually itemize the fees they charge, according to the New York Times. This is not a bad idea. When it comes to any financial or investment products, many forget that these are good like any others that come with a price. People are paid to manage funds and it should be clear how much fund management is costing the average 401(k) participant. For me personally, I am happy just knowing what my after-fees rate of return. If it is X percent of my assets, fine. If I feel that it is taking too large a chunk of my capital gain, I will invest in something else. Fees vary, in particular comparing managed funds to index funds.
But will itemizing each and every fee be of any greater help to a plan participant? It depends on whether the person is detail-oriented. Consider a phone bill, for example. About 25 percent of my local land line bill consists of taxes and fees, which, individually listed, take up nearly a full page of my bill. I have looked at each fee and determined whether or not I really should be paying it. But I will really never know because when I call the phone company, they don’t know what the fee is for either! Being that I have more important things to do than an in-depth analysis on my phone bill, I have given up and accepted that this 25 percent worth of taxes and fees is here to stay. Sure, I could shop around for another phone service at perhaps a lower price, but those taxes and fees will not go away. So do I care whether they are listed individually or as a lump sum? Not really. It’s just the cost of having a land-line phone.
So back to the 401(k) funds. If each item is individually listed, am I going to care? Maybe. I may rail about the investment fees of a particular fund, or move several lines down the page and wonder what kind of service I am getting for paying an individual service fee. But in the long run, I am more concerned about the overall total in fees. If I have to read more than a three-page quarterly statement, I will likely ignore any extra information.
All in all, fee disclosure is necessary. But will it really benefit people, or will it fall victim to a paperwork-weary society, as is the case with the foot-long phone bill?