The Department of Labor on Friday will issue a long-awaited rule that would require retirement-plan providers to disclose the compensation they receive for their services.
Some companies supply this information, but the “interim final rule” will require all service providers that receive more than $1,000 to disclose it. The intent of the rule, which takes effect next summer, would be to help fiduciaries better assess “the reasonableness of compensation paid to plan service providers and any conflicts of interest that may impact a service provider’s performance.” “Our ultimate goal is to empower participants to make better choices or more informed choices, and the first step toward that is to allow the plan fiduciary to make better choices,” said Phyllis Borzi, assistant secretary for the Labor Department’s Employee Benefits Security Administration.
In recent years, more attention has been focused on retirement plan fees, especially people became increasingly responsible for their own savings with the disappearance of pensions and the stock market has plummeted. Congress has tried to pass legislation that would require fee disclosure.
“I think it will make a difference, because once plan sponsors have the information they have an obligation as fiduciaries to make sure these are reasonable,” said Robyn Credico, a senior retirement consultant at Towers Watson.
The new Labor rule applies to pensions and 401(k)-type plans and focuses on direct and indirect compensation to service providers. “The purpose of this regulation is to make sure everyone know what they’re paying for,” Borzi said.
Rick Meigs, president of 401khelpcenter.com, said: “I think it is a great thing. Transparency is the best disinfectant.” He said the information would be especially useful for employers using the smaller 401(k) plan market where some companies still charge very high fees.
The fees “really impact the ability of people to retire,” said Marcia Wagner, managing director of The Wagner Law Group in Boston, which specializes in employee benefits. “A lot of people don’t know what the different vendors are charging their 401(k) plans.”
