Fee Transparency in 401(k) Plans is Integral to Their Success

Investors in 401(k) plans may soon receive more detail about the fees involved in their plans if new regulations around fee disclosure are approved.

The Department of Labor is expected to issue regulations this month that will detail how service providers should disclose fees to plan sponsors. Additional guidance on how plan sponsors should disclose fees to participants will follow, according to a report in Pensions & Investments.

At Putnam, we believe that fee transparency is a sponsor and participant right. Both groups are entitled to clear information about fees and expenses associated with their retirement plans; it is also an obligation of the plan provider.

Fee transparency is integral to the plan sponsor’s ability to meet its fiduciary responsibilities. The plan sponsor must understand the relationship between cost and benefit.

We believe that only through a clear delineation of fees and expenses can plan sponsors determine the best value for their needs. And fee disclosure is necessary for participants to understand the value that their plan provides them.

One of the issues in the debate is how to present the information in a meaningful way to both plan sponsors and participants.

At Putnam, meeting the needs of these groups led to the development of online fee disclosures to help both plan sponsors and participants find the information they need. In early June, we plan to present disclosures for plan sponsors, to be followed in July by information for plan participants.



For illustrative purposes only.

On the plan Web site, sponsors will be able to view in detail the costs and services associated with their plan. The disclosure includes a view of total cost, including breakdowns of what each investment manager and service provider is paid and what services they provide.

Sponsors can also obtain a real-time view of costs that reflects balances and investments.

The plan participant disclosure is designed for participants to see the expense ratios of the individual funds in the plan as well as the fees for various transactions, such as loan initiation fees and cash distribution and rollover fees.

In a study conducted by Putnam in March, 59% of defined contribution plan advisors surveyed said that the current focus on fee disclosure will benefit sponsors and participants by providing more education for their decision-making. Half of those surveyed said they believed disclosure would provide important fiduciary safeguards. We believe Putnam’s innovative online disclosure will make fee transparency even more accessible and understandable.