The Department of Labor on Thursday unveiled a 401(k) fee disclosure form to help employers understand what they are paying for.
The 11-page guide defines various fees and breaks them down into categories, letting employers more easily calculate and account for the costs of operating a 401(k) plan.
The guide was developed by the Labor Department, the American Bankers Association, the Investment Company Institute, and the American Council of Life Insurance.
Though the form is not required, plan sponsors - particularly small businesses - are expected to benefit from it. Unlike their larger cousins, small businesses may not have the resources to investigate providers' fee structures.
The form will make the process more "user-friendly," Labor Secretary Alexis M. Herman said in a conference call with reporters.
"What we're trying to do is take the mystery out of the process and make the process work," she said.
The initiative came as assets in 401(k) plans have reached an all-time high.
Assets invested in 401(k) plans totaled $1.14 trillion in 1998, according to Spectrem Group, a San Francisco consulting firm. Twenty percent of those assets were administered by banks, compared with 42% by mutual fund companies and 22% by insurance companies.
At issue is the fact that many providers do not itemize costs, which range from one-time start-up fees to annual payments. Plan sponsors could, therefore, choose a provider on the basis of what seems to be a competitive price but really is not.
The Labor Department is also concerned that some providers say their services are free though they are, in effect, hiding the fees.
Employers have a fiduciary duty to consider costs when formulating a plan, said Craig S. Tyle, the general counsel for the Investment Company Institute, the trade association for the mutual fund industry.
"To fulfill this duty employers need information about costs that is both complete and easy to understand," he said.
The guide gives a general description about calculating fees, a one-page summary of all fees and expenses, and additional schedules that break down the fees into categories including costs from investment products, plan administration, and starting a plan.
Edward L. Yingling, the executive director of government relations for the American Bankers Association, said he expected it to become "common operating procedure" for vendors to fill out the form when soliciting business.
He said one of the key elements is the definitions section, which explains the various services involved in a 401(k). "If someone says it costs 15 cents to do something and another says it costs 12 cents, you need to know you're comparing the same thing," he said.
The guide and a related pamphlet for employers are expected to be available on paper or on the Web sites of the trade groups and the Labor Department.