See-Through 401(k) Fees May Lead to Churn

Transparency on costs could lead to unbundling, provider switches.

Alison Borland, Aon HewittNow that 401(k) retirement plan sponsors are disclosing more about the fees paid to plan providers, will the increased transparency cause companies to rethink these relationships? Yes seems to be the prevailing answer.

Two Department of Labor rules that kicked into gear this year require plan providers and companies that sponsor plans to open the books on plan fees and investment costs to the country’s 72 million participants in 401(k) plans.

Joel Shapiro, 401(k) AdvisorsBecause plan sponsors have a fiduciary duty under ERISA to prudently select and compensate plan providers and other third parties, Shapiro, pictured at left, says the fee transparency “will force a switch in plan sponsors among some providers, and weed out some of the less skillful advisers.” He adds, “Plan sponsors that haven’t gone to market in a long time, if ever, will do some benchmarking to find the best plan from a cost, investment and service standpoint.”

Not everyone agrees. Martin Schmidt, principal at HS2 Solutions, an HR solutions provider in Chicago, says fee disclosure has the potential to be truly transformational at the small end of the market, but predicts much of the same among larger companies.

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