Feds propose new rules that would require more disclosure about 401(k) fees — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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Feds propose new rules that would require more disclosure about 401(k) fees

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in Human Resources

The U.S. Department of Labor has proposed new regulations that would require 401(k) administrators to reveal their fees—but not to employees.

Under the proposed regulations, administrators would have to reveal their fees only to employers. Employees, usually the ones paying the fees, would still be in the dark. For that reason, the proposal had drawn plenty of fire, especially from congressional Democrats. One loud opponent: Rep. George Miller (D-CA), chairman of the House Education and Labor Committee, who pushed legislation last year that would have required fee disclosure to employers and employees alike.

The Labor Department said it hoped these proposed rules would “foster fair, competitive and transparent prices for services, as well as combat excessive or hidden plan fees.”

Some business groups have expressed concern over revealing administrative fees to employees. They claim the disclosure may discourage employees from contributing to 401(k)s. Additionally, fee calculations are often complex, making it difficult to compare costs between competing financial institutions.

Often, fees are based on a percentage of assets invested, meaning fees are low at the onset, getting higher as 401(k) balances grow. Financial institutions lose money on small accounts, but larger ones are very profitable.

Even just informing employers about the fees will cost the financial industry money as well. According to Labor Department estimates, financial institutions will spend approximately $52 million to comply with the regulations the first year. Costs will go down as the compliance practices become routine.

This proposal isn't final. It will be available for public comment after being published in the Federal Register on April 25. Although the Labor Department hasn't released the end date of the comment period, the process typically takes about six months from proposal to implementation.

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