A proposal that would make it easier for workers to understand their 401(k) plans could boost retirement savings by cutting billions in...

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A proposal that would make it easier for workers to understand their 401(k) plans could boost retirement savings by cutting billions in costs, the government estimates.

The Labor Department proposal, expected to take effect Jan. 1, would require employers to disclose expense ratios and other costs in an easy to follow format, such as a chart. Costs are expected to fall as employees choose cheaper investment options and providers compete more on price. Now, information on costs can be hard to find as it’s often scattered among plan documents.

Fees in 401(k) plans have changed little in recent years. Bradford Campbell, assistant secretary of labor for the Employee Benefits Security Administration, says the regulations will save $2.3 billion over the next 10 years, calling it a “conservative estimate.”

The proposal requires employers to clearly disclose fund expense ratios and the participants’ share of the plan’s administrative costs, and it calls for disclosure of annual average returns compared to a benchmark. The clearer disclosure could prompt more participants to choose passively managed index funds, which are cheaper than actively managed offerings.

“Department of Labor is finally stepping up,” says Ted Benna, president of the 401(k) Association. “One of the keys in this situation is that we move toward passive funds. The returns for actively managed funds typically aren’t good enough to justify the costs.”

Some experts think the proposal will spur plans to offer low-cost exchange-traded funds, but ETFs trade like stocks so commissions must be paid.

Besides, a survey conducted by Deloitte Consulting suggests participants don’t want more choices: 95 percent of employers say their plans offer sufficient, or too many, options.

The Deloitte survey, conducted in late 2007 and early 2008, asked employers a range of questions regarding plan policies and objectives.

More information on the Labor Department proposal can be found at www.dol.gov/ebsa.