The Frugal Fiduciary Small Business 401(k) Blog
Get the latest industry news, deadlines and tips you need to know to help tackle your fiduciary responsibility needs.
When a business owner needs help picking investments for their 401(k) plan, my advice to them is always the same – hire a fiduciary-grade 401(k) financial advisor. The reason – only advisors bound by a fiduciary standard of care have a legal obligation to give impartial investment advice to their clients. In contrast, it’s perfectly legal for non-fiduciary advisors – who are bound by a lesser “suitability” standard – to give conflicted advice by steering their clients towards high-commission investments when lower-cost alternatives exist. In general, fiduciary-grade 401(k) advisors include investment advisers, but not brokers and insurance agents.
Due to the power of compound interest, 401(k) participants can add hundreds of thousands of dollars to their savings – or retire years sooner - by keeping their account fees as low as possible throughout their working years. And yet, in my experience, few participants appreciate this indisputable truth. Employee Fiduciary would like to help change that. This month, we launched an online calculator to show users how much they can add to their future savings by lowering their 401(k) fees today. Our bet - most users will be shocked by the amount they find.
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This month, the Department of Labor (DOL), IRS and Pension Benefit Guaranty Corp (PBGC) proposed changes to the Form 5500 – a report most 401(k) plans must file annually to meet ERISA requirements. Two changes would require large Form 5500 filers to report more 401(k) fee information. I think more fee reporting is necessary.
The U.S. Government Accountability Office (GAO) is federal agency that, according to its website, “provides Congress and federal agencies with objective, non-partisan, fact-based information to help the government save money and work more efficiently.” In an August report, the GAO assessed the effectiveness of the Department of Labor’s (DOL) 401(k) fee disclosure rules. They found that nearly 40% of 401(k) plan participants do not understand the fee information mandated by the DOL. This much confusion is a big problem when you consider the cumulative effect of 401(k) fees over time. To manage these losses, participants need a clear understanding of their 401(k) fees.
I recently read an interesting article in the New York Times titled Stop the Hidden-Fee Rip-Off. In the article, a lawyer for the Institute for Policy Integrity calls on the Federal Trade Commission (FTC) – a government agency charged with protecting consumers from deceptive, unfair and anticompetitive trade practices – to ban “hidden fees in all industries.” I could not agree more. Hidden fees make it harder than necessary for consumers to make informed buying decisions. I think the FTC should start with hidden 401(k) fees given their impact on retirement’s affordability.
At Employee Fiduciary, we know a cost-efficient 401(k) plan with the right features can dramatically reduce the out-of-pocket cost of retirement for participants. For that reason, we’re passionate about delivering 401(k) education that makes it easier for employers to offer such plans and their employees to take full advantage of them. To that end, we’re proud to announce the release of our new knowledge center – which includes impartial 401(k) education for both employers and retirement savers.