When it comes to 401(k)s, transparency is crucial - especially when it comes to fees.

After all, over 35 years, even an innocent-sounding 2% fee can consume up to half of the returns from the retirement savings you worked so hard for.

That's why the government requires plan sponsors to disclose ALL the fees participants are paying. Of course, doing this yourself would be a nightmare (both from a fiduciary standpoint, and with all the work it'd take). Luckily, your 401(k) providers should do all of the work for you by sending their 404(a)(5) participant fee disclosures!

But wait... what the heck is a 404(a)(5) participant fee disclosure? And what are the requirements around sending them? Don’t worry we'll demystify this important document, breaking down what it is, why it's important, and everything else you need to know about sending it. Ready to get started?

What is a 404(a)(5) Participant Fee Disclosure?

Quick Definition:

Department of Labor (DoL) regulations require that a retirement plan’s participants are provided with timely and comprehensive information about their investment fees. This is fulfilled in the form of a 404(a)(5) participant fee disclosure.

Important note: A fee disclosure has to show all the fees that participants face - from custodial and recordkeeping fees to investment expenses.

All About the Participant Fee Disclosure Process

How It’s Made:

All jokes aside, quite a bit of information (i.e work) goes into a typical fee disclosure, so it’s a good thing you (the plan sponsor or administrator) don’t have to do that part.

The 404(a)(5) fee disclosure is typically put together by the recordkeeper. It’s then sent along to the plan sponsor, who then distributes it to the plan participants.

Important Note: Do NOT change anything. If any of the information is incorrect or throws up other types of red flags, this is something to mention to your recordkeeper or TPA. Just don’t try to amend a fee disclosure - doing so could create fiduciary risk.

404(a)(5) Participant Fee Disclosure Distribution Methods

Bad news: Even though the recordkeeper does the hard work, plan sponsors still have the duty to get the fee disclosures to participants.

Good news: Electronic distribution methods are allowed, so often that duty is actually really easy and/or almost automatic. However, it won’t come as a surprise that there are some rules you have to follow for electronic sending. These are:

  • The recipient must have access to the document on a work computer
  • OR must have been given a computer for work
  • OR must have opted in for electronic delivery.

If none of these methods are available (or if your company likes tradition) then you can send hard copies to your employees via the mail.

In essence, you just have to make sure that participants have the easiest possible access to the fee disclosure information. It’s all about transparency, after all.

Who’s Responsible for Sending These?

The plan sponsor has the duty to distribute the fee disclosure to all participants and account holders with control of their accounts (this includes other beneficiaries with direct management of the funds).

Sounds simple, but there a few different things to keep track of...

Different Participant Fee Disclosures, What’s Required, and When

Types of Fee DisclosuresPurpose and ContentsWhen is This Sent?
Initial and Annual Fee and Investment Disclosure NotificationGeneral plan info, admin fees, participant-level fees, investment fees, and related expenses.On or before the participant gains access to and control of their retirement account assets. Every 14 months (due to a recent 2-month extension).
New Participant Fee DisclosureThis disclosure informs new employees - it’s got the same information as the Annual Fee Disclosure.Provided prior to eligibility or as part of the automatic enrollment/new-hire paperwork.
Fee Change DisclosureThis is a disclosure to update plan participants on any fees that have recently been changedNo less than 30 (but not more than 90) days BEFORE any changes are due to take effect. Be preemptive with the notification, but not so early that it’s actually inconvenient to plan for (like a wedding invitation 3 years in advance).
Quarterly Fee DisclosureInformation on the quarterly statement - including the dollar amount they actually paid for general administrative fees.Pretty simple - every quarter.

How Participant Fee Disclosures Impact Employee Benefits

Fee disclosures are all about transparency - and that’s because transparent fees help participants pick the best options and save more money - the whole point of retirement savings.

In fact, the DoL has estimated $14 billion in savings to participants in 10 years as a result of fee disclosure rules. The vast majority of the savings, according to the DoL, come from the access to information and increased ability to choose lower cost investments. Information is power (or in this case, money)!

Remember, as plan sponsor, you have the fiduciary responsibility to act in the participant’s best financial interest. That means asking yourself the all-important question... “Are my plan participants paying reasonable fees?”

Conclusion

Fee disclosure rules may be relatively new - but they’re in place because of a greater need for transparency.

Transparent fees show employees exactly what they’re taking home, and ultimately help plan sponsors fulfill their fiduciary duty to act in the financial best interests of their plan participants. That means, first and foremost, reasonable fees for 401(k) services.

If you'd like to check whether or not your 401(k) fees are reasonable, try our 401(k) fee calculator! Just answer two quick questions and instantly receive estimates for a low-cost plan tailored to your business on three major providers!