A Good First Step to Cleaning Up the 401(k)

The Department of Labor issued new rules that will require employers to reveal the cost of the 401(k) plan and its performance to participants. These rules will take effect in 2012. That will certainly give the bad players in the industry enough time to invent ways to hide fees. But seriously, all fee disclosure is about the free flow of information and in a society like ours, that’s a good thing.

People in the industry will certainly predict the end of the 401(k) industry, but the industry will be strong enough to adapt to a full fee disclosure model. Service providers will thrive with the change, others will die. It happens in business all the time, look at Netflix and Blockbuster. The 401(k) business, based on a full fee disclosure model will be the survival of the fittest.

There will be unintended consequences, as there is with any change. The sky won’t fall, the industry will survive, and we will have to deal with any changes caused by this. No matter how you try to spin it, a business where fees where hidden from those who pay them (the participants) doesn’t sound like a business that should maintain the status quo.

I look forward to 2012. It won’t cure all the problems of the 401(k) industry, but it’s a good first step.