Tips for deciphering DC plan fees

Rousseaux said he has even spoken to financial advisors who couldn't make sense of the information provided.

He offered the following tips to understand plan fees.

1. Trading fees apply to mutual funds which typically comprise at least half of 401(k) plans. These previously undisclosed fees are brokerage commissions that are charged to the plan holder every time a fund is traded. The charge is a percentage of the fund's value, somewhere between less than 1 percent to less than 2 percent. In many cases, fees can double the cost of the transaction, Rousseaux said.
2. Revenue sharing occurs when mutual funds and other plan providers pay a third party for administrative services such as recordkeeping, which the fund is expected to perform. These will be labeled sub-transfer, agents/sub-TA or shareholder servicing and they are built into the plan's expense ratio so it is not a double charge.
3. 12 b-1 fees: This term – named for the section in the regulation that allows for it – applies to marketing and distribution costs. They're generally paid as commissions to brokers who service retirement plans and they also may be paid to non­investment professionals such as recordkeepers or insurance companies. Most mutual funds have share classes that provide for varying revenue amounts from 12b­1 fees.  Brokers and recordkeepers have an incentive to use funds with 12b­1 fees and to share classes with higher 12b­1 fees because they make more money.

He recommends that participants and advisors look closely at the expense ratio of a plan, which should be stated in dollars under terms of the new DOL regulations.

"Generally, the lower the ratio, the bigger the fund will grow," he said.

See also:

• What does your retirement plan really cost?
• 401(k) Disclosure May Spark Market Shake-up