Fees and charges can dent your retirement savings. But Phyllis Borzi, the assistant secretary of labor for the Employee Benefits Security Administration, says that most people don't know how many fees come out of their accounts -- or even what those charges are for.
Kathy Kristof interviewed Borzi about new rules that will clear up the confusion and help employees zero in on their most cost-effective 401(k) choices.
What’s going on with 401(k) fees? We just finalized a regulation that requires service providers to disclose conflicts of interest and give a detailed breakdown of charges to plan sponsors. It works in conjunction with another rule already enacted that will show participants exactly what fees are coming out of their accounts, including fees for investments and administrative costs associated with managing the plan. Most participants will see these disclosures by August 30; everyone else, by year-end.
How will this rule help? Most people have no idea how many fees and charges come out of their account and what those charges are for. This will give individuals a chance to make better investment decisions with their retirement assets.
What’s next? We are working to re-introduce a proposal on the fiduciary standard as it affects retirement plans. Last year, our proposal was subject to a wholesale assault from broker-dealers. The new proposal, like the old one, will prohibit advisers who accept a fee for providing investment advice to retirement plans from giving advice that represents a conflict of interest, unless they persuade us that their approach is beneficial to plan participants.
Why is that so important? A fiduciary has to act in the best interest of the plan. Right now, a number of people who advise retirement plans do not have to live up to that standard. That creates problems for both participants and sponsors.
How so? Say you’re a business owner, and a broker says he can help you set up a retirement plan. He says he’s an expert and urges you to follow his investment advice. But when it turns out the advice was imprudent and cost the plan money, the adviser says: “You made the decision. We aren’t responsible.” If the adviser is not a fiduciary, we can’t go after the person responsible for the poor advice. As regulators, we’re left with the option of going after the employer, who is often also a victim, to get money back for employees.
Would the standard affect only advisers to employer plans? No. It would also apply to individual retirement accounts.