When small change is hardly chump change

Since budgeting counseling is an important part of my financial planning practice, I get a kick out of finding easy ways to save money.  So, when I read that there was an update on the Department of Labor’s progress toward their 401(k) fee disclosure laws, I was curious.  After all, with better disclosure  more transparency, and increased competition, it should be easier for every 401(k) participant to save on the fees that they pay for the administration and management of their accounts.
So far, Wall Street has claimed that disclosure is “too complicated,”and managed to defer the implementation of the new disclosures until April 2012.  The question is whether the implementation will be delayed even longer.  The Department of Labor says not, even though they missed their own deadline to provide explanation of the rules.  It’s hard to be sympathetic.  I like this quote from Mercer Bullard, an associate professor of law at the University of Mississippi:
“This is a reflection of the broker-dealers choosing to operate in an environment where they charge everyone differently for identical services.  The industry… created the complexity and now they are complaining about having to disclose it.”
Not every broker or 401(k) custodian is out to gouge the public. Some firms already make low-cost index funds available in addition to the higher-cost actively managed funds.  To its credit, Putnam is already disclosing their fees.  Personally, I hope that being more transparent and offering lower-cost index funds will become a competitive advantage — for the security firms and for the companies that choose 401(k) providers.  In one study of 600 employers, 67% have already taken steps to force their 401(k) managers to improve offerings to their employees.
What do the new disclosure laws mean to you, the 401(k) participant? If you put  $10,000 per year in to your 401(k) for 30 years, a savings of .5% could save you $90,000!The new laws are supposed to be implemented in June, but I don’t think you should wait.  There may be more attractive options available to you right now.  And if the prospect of re-allocating your 401(k) sends shudders down your back, remember — you don’t have to do it alone.  As an independent hourly financial planner, I’m here to help you to design a portfolio that includes a 401(k) that works as hard as you do.  And maybe, there are also investment management fee savings to be had.  Call soon, because $90,000 is definitely not chump change.
P.S.  Happy Valentine’s Day!

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