(Dow Jones) Legislation that would require better disclosure of 401(k) fees could result in more information and more investment choices for workers but also more uncertainty.
"People may need more advice," said Jan Jacobson, senior counsel, retirement policy, for the American Benefits Council, a national benefits trade association.
"Additional information can be helpful to plan fiduciaries and plan participants in analyzing options," she said. "But one potential problem is if participants focus only on fees and don't look at other information, such as historical returns."
The House of Representatives last week approved legislation including provisions that would, among other things, require more disclosure of fees within 401(k) plans. The Senate passed a different version of the same measure in March.
Some 401(k) plans have begun to better disclose these fees in anticipation of legislation or regulations from the Department of Labor, but most haven't. Fees often are difficult to identify because they're calculated as a percentage of a fund's average net assets including its management, administrative, marketing and other fees, according to mutual fund company Vanguard Group.
Fees can add up over time. According to Vanguard, a 60-year-old investor with a $500,000 portfolio and a fund expense ratio of 1.19%, the industry average, would pay $6,055 in expenses this year. In contrast, someone with an expense ratio of 0.23% would pay $1,170 in fees.
Nonetheless, fees are just one factor in developing a retirement investment strategy, and there is a risk that "some participants will go for [funds] with the lowest fees without understanding them," said Robyn Credico, a senior retirement consultant at Towers Watson.
The legislation is likely to prompt more employers to open up their fund offerings beyond those of the company overseeing the plan, such as Vanguard or Fidelity Investments.
"Not every vendor is good in every asset class," and the new rules will encourage providing the best options, Credico noted.
That in turn means more decisions for a plan participant to make.