What the …?’ moment coming for 401(k) participants
NEW YORK — Employers, advisers and fund companies are bracing themselves for a flood of calls this fall when participants in 401(k) plans learn for the first time just how much they paid in fees the previous quarter.
Under Department of Labor regulations, employers have to provide fee information to the investors in the plans by August 30. The disclosures will simply show what an employee could pay in fees onvarious investment options in their 401(k) plans.
But the real “aha” moment for many plan participants is likely to occur sometime after November 15 when they receive account statements detailing what they actually paid in fees the previous quarter — in dollars and cents.
Recent research suggests that the existence of fees might alone be news to many employees. More than 70 percent of 401(k) plan participants did not know they paid any fees for investing in their plans, according to a recent AARP study.
“This (November) will be the first time that most participants see a deduction from their accounts that are not a result of market losses,” said Bill Peartree, a San Diego-based financial adviser with Barney & Barney Retirement Services, serves retirement plans and has $1.2 billion in assets under management.
Peartree and other advisers say employees may be alarmed at what they see.
In April, Fidelity began mailing and e-mailing fee disclosures to more than 9 million 401(k) participants, several months ahead of the required rule. In that time, the fund operator has only received about 600 calls with questions about the fees, according to people familiar with the situation.
Some say that the few calls Fidelity received from its early disclosure mailings could be indicative of what may happen at other firms after the August 30 deadline for disclosure.
“It just reinforces the notion that no one is going to read these because you would have expected more calls,” said Robyn Credico, defined contribution practice leader at Towers Watson & Co which advises retirement plans.
The idea for fee disclosure was simple enough: Show people who are saving for retirement through 401(k) plans exactly what portion of their investments goes to paying for fees.
South Carolina’s Pension Push Into High-Octane Investments
MANY mornings, the yellow Lamborghini would swing into view, sweep past tree-softened streets with a low, smooth rumble and throttle down outside an office near the State House downtown.
Behind the wheel was a financier named Robert L. Borden. Around Columbia, a city decidedly more Ford than Lamborghini, his exotic supercar gave him the air of a Wall Street hotshot. In truth, Mr. Borden was a civil servant — a very highly paid one. Until recently, he was the investment chief of South Carolina’s giant public pension system.
It turns out that Mr. Borden liked his investments the way he liked his cars. Which is to say, fast. With the help of some big names on Wall Street and a nod from officials here, he transformed this state’s go-slow public pension system into one of the most high-octane in the nation. So far, though, the results have been mixed. The long-term consequences — for retirees, public workers and taxpayers here — are as yet unknown.
What is sure is that while he was running things, South Carolina ended up paying hundreds of millions of dollars in fees — $344 million last year alone — to a Who’s Who of hedge fund managers and private equity deal makers. In return, it got a trove of investments that haven’t really provided the bang that people here had hoped for. Today, the pension fund has a higher share riding on private-equity and hedge-fund plays — called “alternative investments” in some circles — than almost any other state’s: $13 billion, or more than half its total.
What is also certain is that Mr. Borden is long gone. Mr. Borden, who resigned last December to join a private investment firm, says he is proud of what he accomplished in his nearly six years at the helm of the $24.5 billion South Carolina Retirement Systems.
Still, like other pension funds across the country, South Carolina’s faces a shortfall — in its case, an estimated $14.4 billion. But, as in other states, the scary thing is that no one really knows how bad this could get. A firestorm over pensions and other benefits for public workers is raging nationwide. It reared up with new fury last week, with the failed recall election of Gov. Scott Walker of Wisconsin, and votes in two big cities in California, San Diego and San Jose, to sharply cut pension payouts.