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What am I paying for my 401(k)?
By Louis S. Harvey, CEO Dalbar, Inc. on Aug 14, 2012


The New Big Dig
Instead of complying with the intent of the regulation, thousands of plan sponsors will simply approve the disclosures that service providers claim to be technically compliant.
Technical compliance means that there is a way for a participant with enough time and sufficient interest to dig out an answer.
And this is a “Big Dig”!
Here is what the typical participant will have to do to figure out what he/she is paying for a 401(k) plan.
The first step will be to set up a spread sheet. This can be on paper or on Excel or other spread sheet tool. Set up columns for “Investments”, “Value of Investment”, “Expense Ratio”, “Other Fee”, “My Annual Cost”.
You will need two documents to prepare your spread sheet. First is the last account statement you received. The second is the disclosure document called the “Comparative Fee Chart” or a similar name. If you used paper, you will also need a calculator.
Using the account statement enter each investment that you own in the plan on the spread sheet. Beside each investment, enter the “Value of Investment” which is also on the account statement.
Turn next to the Comparative Fee Chart and enter the “Expense Ratio” for each investment that you previously listed on the spread sheet.
If there are any additional fees listed on the Comparative Fee Chart or that apply to you, they must now be put in the “Other Fee” column as a dollar amount. “Other Fees” could be sales charges, withdrawal fees, surrender charges. If an “Other Fee” is disclosed as a percentage, it will be necessary to calculate what the corresponding dollar amount is.
It is now time to do your calculations.
For each investment listed, multiply the “Value of Investment” by the “Expense Ratio”. Add the “Other Fee” and put the result in the “My Annual Cost” column.
If you had any fees specifically charged to your account, such as fees for loans or other services add an entry for each of these and put the total dollar amount in the “My Annual Cost” column.
You are almost done!
The final step is to calculate the total of the “My Annual Cost” column, and you have your answer!
Is this Fee Disclosure or Fee Excavation? Grab your hardhat!

Depends on the participant
Created by Mark Eckman in 8/16/2012 11:20:18 AM
The use of the data wil depend on the plan participants. Some engineering participants may use this process, regardless of how robust disclosures we provide. Some part-time employee participants may not open the envelope.

So, as always, the key is communicate, communicate, communicate, (or listen to lots of questions.)

Information Overload
Created by Lawrence Zeller in 8/15/2012 1:33:08 PM
Louis, your point is well-taken. The recent participant fee disclosure regulations are not going to make it easy for participants to calculate, let alone understand, the fees they are paying. The vast majority will either make no attempt to understand the information, or will give up after seeing how much time and effort would be involved in assembling and interpreting the data. Participants receive so many notices, forms, and statements about their plan that they do not have the time or energy it would take to analyze the information they receive. Consolidation and simplification is sorely needed.
Created by Louis S. Harvey, CEO Dalbar, Inc. in 8/15/2012 11:47:18 AM
If only that were true.

Unfortunately, the majority of quarterly disclosures will only show specific dollar amounts for items paid by directly participants in that quarter. Most will only provide a general description of fees paid through investment assets, making the quarterly statement disclosure virtually useless.

New Comment
Created by David Kendall in 8/15/2012 10:50:06 AM
Your article would be useful if the disclosures you are referring to were all the participants are going to receive. In fact, the information you describe is included in an annual statement that must be provided to each participant simply describing the kinds of fees the plan will pay and how they are allocated. Beginning in November, participants will also receive quarterly statements of exactly how much they paid in fees for that quarter. It kind of makes your analysis above a waste of time.

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Louis S. Harvey
President & CEO



Founder and leader of Dalbar, Lou Harvey is relentless in the search for the forces that are shaping the world of financial services today, tomorrow and for years hence. Using Dalbar’s research capabilities, Lou Harvey seeks insights from inside and outside the industry to understand and anticipate changes in customers’ needs and the ways products are distributed.


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