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The Department of Labor (DOL) set a new regulation that says that 401k plan vendors (like a Vanguard or NorthernTrust) will have until April 1, 2012, to disclose fees to plan sponsors (i.e. employers), while plan sponsors will have until May 31, 2012, to disclose fees to employees on their quarterly statements. Fee disclosure is the starting point for the new regulations.

If you are an employer and 401k plan sponsor, you have a fiduciary responsibility to understand plan fees and determine if those costs are reasonable. Employers need to review fees associated with investments and administration as well as recordkeeping, trustee, advisory, trading, and custodial services, etc. Many of these fees are hidden and buried within the contracts or in the wording of the investment prospectuses. It seems most employers don’t know how much they’re actually paying and are really in the dark about the fees associated with the retirement plans. In fact, the DOL did a study indicated that they may be losing up to a third of the retirement savings plan for unnecessary expenses.

Now in 2011, 401k providers should find out the full list of expenses associated with all their plans and make certain that they understand the fees that are in place and what the impact is to the employee over time. It would be a good idea for an employer to look into more cost effective solutions for the future. Once fee disclosure is in place, plan sponsors (employers) will be forced to declare the fees they’re paying in the year 2012. It will be the sponsor’s responsibility to explain and justify these fees to their employees.

Even more scary for employers is that in 2013 another new regulation is supposed to take effect that may require all businesses to offer a retirement plan to employees. Of course if your company already offers a 401k plan or something similar, this will satisfy the obligation. Companies that don’t have a plan may be directed to either establish a 401(k) or offer an “auto” IRA account for each of their employees. The “auto” IRA bill died in Congress at the beginning of 2011 but Obama is trying again to make the “auto IRA a reality. From what I have read “auto” IRAs are likely to have a lower annual contribution limit and aren’t projected to allow for a loan provision. Employees may still receive a tax break; however, it could be significantly less than in a 401k plan. This is because contributions made into “auto” IRA accounts will be made solely by their employees.