NAFCU Services Blog

Mar 18, 2012 by David Frankil

Does Your 401(k) Have ‘Fee Vampires’?

Originally published on

We’re big into energy conservation in my household, and it wasn’t until we began looking more seriously into why we were using so much electricity that we discovered the dark side of all those ‘instant on’ appliances and electronics. Plugged in all the time, they act like little energy vampires, sucking what is individually a small amount of electricity out of the grid for our convenience. Problem is, all those small amounts add up to a big chunk of our monthly utility bill.

We all want the best for our employees when it comes to their retirements.  We encourage, cajole, and practically order them to participate in our 401(k) programs to take maximum advantage of the tax benefits and any matching program we might have. And then we often provide education about investment options to give every employee the opportunity to select a pattern of investment that fits their personal style and time of life, to maximize the value they are going to receive from the program.

But just like we went through an energy audit, you need to go through a fee audit for your 401(k) to make sure that superfluous fees aren’t sucking a chunk of the potential return away from your employees.

This is a complicated area, with several steps in the value chain of brokers and representatives, all of whom receive some form of compensation for their efforts.  The problem is that some of this compensation is not always disclosed, and can be buried so deep within existing programs that it is nearly impossible to tease out an accurate picture of how much your program is really costing you.

Recognizing how challenging it is to get accurate and clear information on fees, the U.S. Department of Labor recently announced a new fee disclosure requirement that makes it easier than ever to find out just how much your program is costing your employees.  The Department of Labor is requiring service providers to make written disclosures of the fees associated with all of their services. Most important, the DOL is requiring disclosure of the arrangements between service providers and payers of indirect compensation – a fee revenue stream that was practically impossible to tease out of plan documents up until now.

Even worse, some of the advisors credit unions have been trusting to help them select 401(k) plan providers have been benefiting financially from their vendor recommendations, a deeply hidden conflict of interest we delved into with another blog post.

More information is available on the U.S. DOL website, and the disclosure form is already available online.

The law does not officially take effect until July 1, 2012, but there is no reason why you should wait. Ask your 401(k) provider to fill out the U.S. DOL form now, and then start shopping around – you might just find that you can significantly enhance the return your employees are getting just by shining some light onto what you’ve been paying.

Post written by Dave Frankil, President, NAFCU Services Corp.

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