March comes in like a lion and goes out like a lamb. Plan sponsors should expect nothing of the sort. The end of March, as of this writing, is scheduled to usher in the DOL’s new fee disclosure requirements. Originally slated to become effective in July 2011, the date got pushed back due to industry pressure. It may get pushed back again, but these requirements won’t be delayed forever.
Rest assured, however, the lions of the 401(k) industry will begin duking it out well before the effective date. Already in January 2012, Vanguard has come out with a controversial new “low-cost” 401(k) package. The controversy deals with both fiduciary issues and its definition of fees. It’s this latter controversy that signals the start of hostilities. Industry heavyweights, long concerned more with keeping clients captive with one-stop-shopping schemes, will begin trying to redefine what “fee” is.
Truth be told, some fees matter and some fees don’t matter. Savvy sales folks will try to convince 401(k) plan sponsors to pay more attention to the fees that matter than to the fees that don’t matter. Smart 401(k) plan sponsors will know this. Smart professional fiduciaries will rub the faces of every 401(k) plan sponsor in the reality of fee disclosure until they all become smart.
What’s the best strategy for smart 401(k) plan sponsors in the new world of fee disclosure? First, it’s to know what fees matter. Second, it’s to make sure fee data is obtained for each service. The DOL provides mixed guidance on this. For one, the DOL suggests 401(k) plan sponsors review fees that don’t matter. Additionally, the DOL literature emphasizes total fees without explaining the need to account for fees separately by service type (the only way to insure the “best of breed” of the ideal 401(k) plan, according to a 2010 Northern Trust analysis).