Global human resources consulting and outsourcing company, Hewitt Associates, is pushing for federal action to help put a stop to the lack of transparency both employers and workers deal with when trying to understand how 401(k) plan fees are being charged.
The company believes that because investment managers and other service providers are not obligated to tell how they’re charging, workers are missing out on the retirement savings that could help them properly rebuild their nest eggs after the financial crisis.
Investment Managers Not Telling the Whole Story
According to Hewitt Associates, millions of employees who are participating in 401(k) plans may be paying unnecessarily high fees because the service providers their employers are working with are charging administrative fees based on the amount of money (assets) in the plan. Taking this route means the providers can charge more than they would be able to if they were charging on a fee-for-service model that bases fees on the number of participants it’s servicing.
But worse, because these providers aren’t obligated to talk about what they’re charging, both employers and workers are paying higher fees than necessary, resulting in employees missing out on a fair chance to recover the money lost after the financial crisis.
Hewitt Proposes Federal Action to Obtain Transparency
In order to make sure that employers and employees know exactly what’s being charged by investment managers, Hewitt proposes that federal action be taken sooner than later. The hope is that if plan sponsors and individuals receive better information on fees, employers will be better able to protect and enhance their employees’ retirement savings by providing a better climate for negotiating lower fees for 401(k) plans.
Recent reports show that nearly half of all American workers have less than $10,000 in their nest egg. Hewitt hopes that this can change in the near future. Currently, there are pieces of legislation moving through the House and Senate that could help make disclosure a necessity. However, it’s possible that with the government hoping to take over 401(k)s and IRAs to pay down the deficit, this particular issue may no longer be a cause for concern.