Are you ready for 2012 Business Retirement Planning Changes?
With the U.S. Department of Labor set to release its final rules on fee disclosure to both plan sponsors and plan participants, 2012 will be a year of changes for the retirement planning marketplace, especially with more focus on 401(k) plans.
Transparency: For the first time, companies and individuals will know what they are paying for record keeping, administration and advice. The general public will finally realize how much of their retirement earnings are going to pay for hidden fees. The fee disclosure rules are scheduled for implementation by August, unless the DOL grants an industry request for an extension.
Industry experts predict that 401(k) advice will be more plentiful in 2012. The Employee Benefits Security Administration issued a new regulation in October that gives smaller companies the opportunity to bundle investment advice as part of their 401(k) and IRA plans. The regulation will allow fiduciary investment advisers to receive compensation from investment vehicles they recommend if the investment they provide is based on a computer model that is certified as unbiased and applies generally to accepted investment theories, or the adviser is compensated on a “level-fee” basis, meaning the fee doesn’t vary based on the investments a participant selects.
The Department of Labor and U.S. Securities and Exchange Commission also are working on competing definitions of fiduciary. The goal is to get more individuals the advice they need so they can save enough for retirement.
The downturn in the market and the losses most retirement plans experienced has made it clear that most investors don’t have any idea how to invest their money, and most are unwilling to pay someone for that kind of help. Having access to advice within a plan they are currently enrolled in will make saving for retirement much easier.
Investment models will change
401(k) investment models will include target date funds, which will take into account how much time participants have left until retirement and how much risk they should take at that point in their careers.
Simple, low-cost options will expand
The industry already has seen a trend toward simple, low cost alternatives to past plans. Recently, many large 401(k) plan providers have started offering small business 401(k) plans. This trend will only continue as rules change, making it easier for people to see what fees they are paying to their plan providers.
Individuals should save more
If the financial services industry is successful in fending off Congressional attacks on 401(k) plan tax incentives, if the economy improves and workers feel more stable in their jobs, 2012 should be a good year for retirement savings.