Revenue-sharing fees in particular have been a source of much controversy. These fees, which are paid by investment managers in retirement plans to the plans’ administrators, often end up being passed through to employees. Despite this, plan providers are not required by law to disclose these fees to participants.

But one organization, the Los Angeles Unified School District, is taking extra measures to disclose such fees to its 110,000 employees.

Specifically, the school district is having its provider, American International Group, list the revenue-sharing fees for each of the funds in its new retirement plan to employees in every communications piece they receive.

Los Angeles Unified has suffered the consequences of failing to disclose fees in the past, says David Holmquist, chief risk officer with the district.

The problem began with a 403(b) plan that the district had in place, a retirement savings vehicle for public entities similar to a 401(k). A few years ago, employees were outraged when many of them realized that they couldn’t withdraw money from that plan—which invested in annuities—without paying high withdrawal fees, he says.

Unlike 401(k) plans, in which employers act as fiduciaries and are legally responsible for understanding fees, employers who offer 403(b) plans are not, and so the district couldn’t intervene, Holmquist says. "The only thing we offered was the payroll deduction service," he says.

This year, however, the school district has launched a 457 plan—the public-entity equivalent of a 401(k). And that puts the fiduciary responsibilities in the hands of the employer. In this role, Los Angeles Unified wants to take extra care to make sure its teachers understand the fees they are paying.

"We want to protect our employees," Holmquist says.

But some experts aren’t sure that disclosing these fees will help participants.

"We are concerned about that level of disclosure," says David Wray, president of the Profit Sharing/401(k) Council of America. "If employees are in a voluntary plan where they have to decide to save, we find that they are less likely to do so if they get complicated and intimidating information," he says.

Holmquist says the school district is making a concerted effort to educate employees on the fees. "We have 20 marketing reps from AIG dedicated to our account who are explaining this individually to employees," he says. Additionally, the district is offering workshops to employees and has online tools on its Web site.

"I fully expect to have some people confused about what these fees are and how it affects them," Holmquist says. "But we felt the right thing to do was to encourage employees to get more educated and, as a result, make better informed decisions."

—Jessica Marquez