Some of our clients have begun to notice changes to the retirement plans offered by their employers. We want to help you understand why these changes are being made.
Here are two things to watch out for. Read about why we think these are positive developments:
- 1. More useful investment options
- 2. Fee disclosure on your statements
Changes to Investment Options
Here at Sage, we have received several emails and phone calls from clients informing us that a change was made to their employer-sponsored retirement plan. It has been a welcome sight: 401(k), 403(b), and Public-Employee plans such as PERS and TRS are changing their fund lineups.
Recent volatility in the market, specifically 2010 and thus far in 2011, has caused some employers to change the investment options in their plans. This volatility has been stomach-churning for many investors who often feel powerless during the ups and downs, causing some to make costly mistakes that are detrimental to their ability to retire. Financial scholars worldwide agree the greatest weapon we all have against market volatility is diversification.
Simply put, we are seeing plans recycle some of the “old” options with “new and improved” options designed to complement the funds that remain; increasing your probability of achieving a well-diversified portfolio. To maximize diversification, it might be the perfect time to review whether your allocation is right for your retirement investment strategy. We are ready to take your questions if you are one of those people who noticed a change in your retirement plan or simply want us to take a second look.
A lot of our clients participate in the State of WA retirement plans (DCP, Plan 3 and more). Click Here to find out what changes to expect in these plans in September and October.
Fee Disclosure on Quarterly Retirement Plan Statements
No one I know enjoys paying a fee for regular service and maintenance. We are comfortable paying for some services as long as it doesn’t cost too much. For example, everyone wants their vehicle to last a long time and to hold its value. That goal at least requires us to change the oil in our vehicles every 3,000-5,000 miles. Oil changes are a reasonable and necessary expense and we all know approximately how much it costs each time it gets done.
A recent survey found 71% of participants were not aware that they pay fees to their 401(k) service provider to maintain their account. In the first six months of 2012, approximately 72 million Americans will see something they have never seen before……how much they pay each quarter for their 401(k) plan.
No longer will this information be hidden towards the back of a long legal document. Instead, it will appear directly on your quarterly statement expressed as a percentage of your balance AND the actual dollars and cents deducted from your account during the quarter.
Why is this important? Similar to cars needing regular maintenance in order to last longer, we must pay a certain amount regularly to have access to capital market investments in our retirement plans. Jiffy Lube knows we all need to change the oil every once in a while BUT we at least get an invoice showing us how much the oil change costs. In October 2010, the Department of Labor decided it is a good idea we all know exactly how much it costs to invest in our retirement plans.
Keep in mind, the amount being charged is not changing. Fees have always been hidden in your earnings. Statements historically express the earnings (or loss) you realize each quarter on a “net” basis. In the future, total fees will be an additional line below the investment earnings (or loss) you realize each quarter.
We are hoping this causes 401(k) service providers to streamline their offering to be more competitive. Perhaps the average level of retirement plan fees will decrease over time. In our minds, this can only be a good thing for everyone.