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(EstateNewsWire.com, October 28, 2012 ) San Francisco, CA- Money adds up over time if one does not pay attention to it. That notion can explain why millions of Arizona workers, as well as their counterparts around the United States, are taking note of new reports about their 401(k) investments.
Federal disclosure guidelines give employees a bit more insight regarding their fees and expenses they place on workplace accounts, which account for 72 million participants nationally. That number ranks among the largest sources of money for many Americans.
To this point, costs have been somewhat obscure, which makes it difficult to account for the drag on portfolios. The new rule-set will not clear up all the muck of confusion; however, it should be a step in the right, and more clear, direction.
In recent weeks, employers have begun to mail the 401(k) cost statements, which will continue henceforth. The information should give participants in the savings plans a better idea of expenses charged along with fees each pays.
"There are so many ways for the providers of these benefits to take a slice here and there, and nobody would ever know it," said Brian Cassidy, president of CCBG Architects Inc., a small firm near downtown Phoenix that has a 401(k) retirement benefit for its workers.
New U.S. Department and Labor rules are then what come into play. The rules are designed to make tracking of 401(k) costs easier for both employers and workers alike. These summarizes do not include costs paid by each work in a lumped number. They instead expose expenses in a standardized format.
"It would be nice to know exactly how much money is going out the door, sliding under the crack," said Martin Ball, an architect at CCBG Architects and a participant in the firm's 401(k) plan. "I'm all for disclosure -- I think it's only fair."
There are a great many individuals that believe these rules are long overdue. 401(k)s are arguably the best investment for the average worker, and have been established for the past three decades.
A lot of individuals do not contribute to Individual Retirement Accounts, and while IRA exceed assets to those of the 401(k) plans, total expenses tends to be money originally invested in 401(k) anyway.401(k) plans, in general, have been rising, while IRA participation have been declining.
401(k) are also predictable in performance. However, plans left unchecked can drain one’s savings. It is not uncommon for a 401(k) investor to get hosed with high fees, lagging performance, or substandard service, said Alan Norris of Norris Wealth management in Phoenix. “It adds up to participants not getting the growth of assets that they should,” he said.
Excessive fees are not defined by the new rule sets, despite the focus on disclosing high-cost investments. The answer does tend to depend on the type of investment.
Many workers are not very educated on the issue of fees, especially which are excessive and which are not. Many workers invest far too conservatively or aggressively, without having proper knowledge of advantages of employer-provided matching funds. The danger of people ignoring new fees, mistaking them for junk mail, is also a very real problem.
"The fee disclosures aren't bad, but I don't know if anyone will understand them," said W.R. "Bud" Lundahl of Meyer and Lundahl Manufacturing Co., a Phoenix architectural-woodworking company that offers a 401(k) program to its employees.
Two thirds of small-business owners were not prepared to answer questions regarding retirement, according to a ShareBuilder 401k survey. This fact is rather surprising given that companies face legal exposure if not fully compliant with the new requirements.
"(Employers) can't just send this information out and cross their fingers," said Joseph Doku of Plan Sponsor Services, a Phoenix firm that helps employers manage their 401(k) plans. "You have to be prepared to answer questions and, potentially, justify the expenses."
New disclosures will be most useful if prompting employees to review accounts and ask questions.
"It will make an impact if every employee walks into their HR department and asks for help in understanding their 401(k)s and whether or not the fees are reasonable," said Norris, a fiduciary consultant for 401(k) plans at Valley companies including CCBG Architects and Meyer and Lundahl Manufacturing.
Many feel the effort to learn more is important, despite a little extra effort required.
"It's satisfying to know that you're putting something away for when you retire," said Eugene Ramarui, a machine operator and 401(k) participant at Meyer and Lundahl.
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