That’s the amount of new money that  Bloomberg estimates will go into 401(k) plans as a result of the Pension Protection Act of 2006 because the new law:

  • Permits automatic enrollment of employees in 401(k) plans
  • Allows small employers to establish combined defined benefit and automatic enrollment 401(k) plans
  • Makes permanent higher contribution limits for 401(k) plans and IRAs

And this estimate doesn’t include the additional fees that the 401(k) service providers will earn as a result of the law change that permits them to also provide investment advice to employees. This provision is effective for retirement plan years beginning after December 31, 2006. Translated, this means that since most plans are on a calendar year basis, the starting date is January 1, 2007.

We’re talking big money. For example, Fidelity alone is expected to see fees for advice increase from $200 million annually to as much as $1 billion.  Bloomberg cites Jim Lowell, editor of the independent trade newsletter Fidelity Investor, as making this estimate.

Potential for conflict of interest? You bet! Let’s hope that the regulatory agencies are able to meet the challenge and that plan sponsors learn how to buy – and not be sold – 401(k) services.