updated July 2012
The U.S. Department of Labor’s (DOL) 401(k) fee disclosure rules take effect in 2012. It's time for benefits and HR managers to start communicating with employees about embedded 401(k) fees, advised Jennifer Benz, founder and chief strategist of Benz Communications, an HR and benefits communications firm.
According to a 2011 AARP study, 71 percent of Americans with a 401(k) don’t think they pay any fees. “That means fees—no matter how well negotiated and low they are—will be a shock to most employees. Start communicating about the fees now so they don’t diminish the value of your 401(k) plan,” said Benz.
2012 Disclosure Deadlines
Final regulations released by the DOL in February 2012 identified three disclosure deadlines (assuming a plan year beginning Jan. 1):
• By July 1, 2012, plan sponsors should have received fee disclosure data from their plan service providers under the DOL's final rule Reasonable Contract or Arrangement Under Section 408(b)(2) – Fee Disclosure.
• By Aug. 30, 2012, plan sponsors disclose plan facts and investment fees to participants under the DOL's final rule Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans.
• By Nov. 14, 2012, plan sponsors issue the first of required quarterly statements of fees deducted from individual accounts (initially reflecting fees deducted during the third quarter).
“While these may seem like just another set of legal notices, at stake are employee engagement, the perception of your 401(k) plan and, most importantly, employees’ long-term financial security,” said Benz. “At a time when few people are saving enough for their futures, don't let 401(k) fees be a confusing factor that discourages employees from participating in their plan.” She offered the following to-do list:
• Out the fees in your plan. The economies of scale might mean that employees are getting a good deal on fund fees, possibly at lower institutional rates than an individual employee would pay to invest in the same fund through a retail mutual fund account. “If so, let employees know. And reference other retirement tools available to employees,” Benz advised.
• Remind employees that 401(k)s are a good deal. Focus on the whole story—match, tax deferral and retirement support—along with fees. “Don’t dilute the power of all you’re providing, even if you aren’t picking up the full tab for fees,” Benz recommended.
• Synch up terminology. “The DOL has developed annual and quarterly notice models containing valuable information in—no surprise—a dense, technical format,” said Benz. Her advice: Align terms with those used in existing savings communications, and relate them to examples familiar to employees. “To increase fluency and understanding—and acceptance—embed definitions of administrative and investment fees into all your savings communications,” she recommended. (This sample glossary of investment terms has been made available by the Society for Human Resource Management in partnership with other associations representing plan sponsors.)
• Get the message out now. “The worst thing you can do is let your employees discover the 401(k) fees from their usually unopened statement,” said Benz. “While some industry analysts aren’t convinced participants will actually read the statements, why risk a negative—disengaging—reaction? Get ahead of the game by planning for communication. And, if you’re planning any big enrollment season announcements, be sure that you’re coordinating timing and message.”
Once a strategy is set, “it will be much simpler to decide how to pace your messages leading up to the initial announcement and through the open enrollment season in advance of the initial quarterly disclosure,” Benz concluded.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
ERISA Service Provider Disclosures: What Plan Sponsors Need to Do Now, Drinker Biddle & Reath LLP, July 2012
A Checklist for Participant Fee Disclosures, SHRM Online Benefits Discipline, March 2012
DOL Final Rule Extends Deadlines for Service Provider and Participant-Level Fee Disclosures, SHRM Online Benefits Discipline, February 2012
What 'Fee Disclosure' Really Means for Plan Sponsors, SHRM Online Benefits Discipline, November 2011
Preparing for Service Provider Fee Disclosures, SHRM Online Benefits Discipline, September 2011
401(k) Fee Disclosure for the 'You Never Told Me' Employees, SHRM Online Benefits Discipline, February 2011
SHRM Online Benefits Discipline
SHRM Online Retirement Plans Resource Page