BETTER ADVICE COULD REDUCE RETIREMENT PLAN FEES

Washington, D.C. - Better information and guidance could improve the oversight of retirement plans and reduce fees for participants, according to a new report by the Government Accountability Office. As workers accrue savings in defined-contribution plans like 401(k) plans and IRAs, they also pay a number of fees that may significantly decrease retirement savings. Participants in DC plans and IRAs generally pay the same types of fees, regardless of the plan in which they are enrolled. However, participants in some plans are more likely to invest in products that have higher fees.

DC plan sponsors generally take certain actions that decrease participants' fees. Sponsors can help reduce participants' fees by, for example, offering cheaper investment products, like low-cost mutual funds. Sponsors may also pool assets to obtain pricing advantages. 401(k) and 401(a) plan sponsors frequently pool participants' assets to realize lower fees in mutual funds, but sponsors of 403(b) plans often do not. Instead, many sponsors keep sponsor involvement to a minimum, which limits the opportunities to pool assets and decrease fees.

Fee disclosure requirements vary depending on plan regulations and investment regulations. For plans not subject to these laws, such as state and local government plans, some states impose disclosure requirements, and some do not. Fee disclosure requirements also vary based on the type of investment product in which participants invest. Because different regulators require different disclosures, participants in DC plans and IRAs can invest in similar products but receive different information on fees.

The GAO recommended that Congress should consider amending the law to require sponsors to disclose fee information to facilitate comparisons, and giving the Department of Labor specific authority over certain plans. It also recommended that the Internal Revenue Service develop guidance on sponsor involvement, collect additional data on 457(b) plans, and share more information with regulators.

IRS CREATES RETIREMENT PLAN TOOL FOR SMALL BUSINESS

Washington, D.C. - The Internal Revenue Service has created a new Web-based tool to help small-business owners determine which tax-favored pension plan best suits their needs and how to keep their plans in compliance.

The IRS Retirement Plan Navigator aims to provide employers with an online guide for choosing, maintaining and correcting a plan, laying out a side-by-side comparison of the various types of pension plans and their requirements.

The Retirement Plan Navigator targets small-business owners, but can also help midsized businesses and their accountants review the various options. Individuals who want to better understand their employer's plan may also find it of use.

The IRS said that the Web-based guide will be kept up to date as pension laws and regulations change.

CHANGE TO ROTH RULES PROMPT FINANCIAL CONSULTATIONS

San Francisco - A pending rule change in the eligibility requirements for a Roth IRA could encourage more people to seek out guidance from their financial advisors, according to a new survey.

The change will make all investors eligible to convert assets from certain retirement accounts, such as a traditional IRA or a 401(k) with a previous employer, to a Roth IRA, regardless of income level. Until Jan. 1, 2010, only people with modified adjusted gross incomes of $100,000 or less are eligible to convert.

The recent survey from Charles Schwab & Co. Inc. finds that 72 percent of Americans making more than $100,000 annually are not planning to convert to a Roth IRA, despite the pending changes in eligibility. But of the 400 Americans surveyed with incomes of $100,000 or more, only 14 percent indicate that they are extremely confident in explaining the Roth IRA conversion rule changes set to take effect, while 71 percent say they would be likely to consult with a financial advisor. Forty-nine percent say they would consult a tax planner.

Nearly two thirds (61 percent) of those surveyed are unaware of the 2010 Roth conversion rule changes. Twenty-six percent of those who are aware of the conversion opportunity find it more confusing than health care reform.

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