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The U.S. Dept. of labour is giving retirement plan providers until July 1 to implement new rules on how they present their retirement plans to consumers.Plan providers have been able to sneak in hidden charges for years without much pushback from regulators, but the DOL ramped up efforts to crack down on fee disclosure in the last couple of years.
“The common-sense rule that we are finalising today will shed light on the true costs of 401(k) accounts and ultimately reward those working hard and saving for retirement,” said Secretary of labour Hilda L. Solis.
But you probably shouldn’t hold your breath.
This is the latest in a string of delays to introduce new disclosure rules in an industry riddled with issues in fee transparency. The regulations were supposed to go into effect April 1.
In defending its decision to offer a three month extension, the DOL said employers and providers need the extra time to get their act together.
Dave Loeper, author of Stop the Retirement Rip-off, blames the latest delay on industry lobbyists who worry the new rules will make it harder for plan providers to push their financial products to employees through retirement plans. (See how to get your employer to change your plan.)
“Sponsor disclosures are not required until July 1, which means participant disclosures are not going into effect until September 1,” he told Your Money. “Also … new regulations are supposed to come out in June, which means sponsors will continue to have to ferret through the disclosures before they get a clear picture.”
Employer-provided plan providers like to sneak in extras like representative fees, administrative fees, distribution fees and expense ratios, Loeper says. When the new Fee Disclosure Act takes effect, there’s going to be a some major “retirement plan sticker shock” going on, he predicts.
“The industry has been creatively hiding these fees for so long that the majority of the public isn’t aware of them,” he says. “There’s a lot of misinformation in financial services in general which is rightfully why the public is upset with Wall Street. They feel like they can’t trust them and a lot of times they can’t.”
Despite the bumpy road to getting the rules implemented, Scott Holsopple of Smart401k said consumers will benefit in the long run.
“Transparency should help to reduce fees in the industry and help investors understand how their retirement plans are helping to achieve their retirement goals,” he said. “There is potential for participants to panic and react negatively if the fees are not carefully explained and placed into context.”
Here’s how the new rule will change the way providers lay out retirement plans:
-They’ll have to tell consumers exactly what services they’re paying for
-Disclosure of direct and indirect compensation they get for promoting certain financial products
-Make brokerage or record-keeping services an option for consumers to control their own investments
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