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401(k) Participants Want Fee Summary, Not Detailed Disclosure

By Stephen Miller  7/30/2009
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While the national policy debate over 401(k) fee disclosure heats up, new research conducted by the Transamerica Center for Retirement Studies sheds light on preferences among American workers for receiving information about fees and expenses associated with participating in their employers’ 401(k) plans.

The survey, Employers, Workers, and Retirement Plan Fees, asked workers how they would prefer to access fee-related information, which is a key area of focus in the policy debate. The majority of workers (75 percent) said they would prefer to receive information through an electronic format such as electronic quarterly account statements or through their plan provider’s web site.

When asked what level of detail they would like to receive about fees:

More than two-thirds of the workers surveyed stated a preference for some form of summary information (54 percent) or no preference (14 percent) for the level of fee detail they receive.

32 percent prefer the information to be somewhat summarized with a breakdown of fees for services and investments.

22 percent prefer a high-level summary with a total, all-inclusive cost.

Only 31 percent prefer a highly detailed account of fees and expenses.

“Given workers’ stated preferences, an ideal solution for disclosing 401(k) fee-related information would be through electronic summaries combined with the ability for them to obtain additional detail on their retirement plan provider’s web site,” says Catherine Collinson, president of the Transamerica Center for Retirement Studies, a not-for-profit foundation sponsored by the Transamerica Life Insurance Co.

Factors Affecting Workers’ Awareness of Fees

In light of public policy questions about the adequacy of current fee disclosure levels, the survey found that workers’ awareness of fees remains low and identified some important factors which might be impacting awareness.

“Our survey found that 401(k) plan sponsors are overestimating workers’ awareness of 401(k) fees, thereby suggesting that workers are currently receiving fee-related information in an ineffective manner —perhaps too much paper and too much detail,” says Collinson.

The majority of employers surveyed (92 percent) agree that the people responsible for overseeing the plan have a clear understanding of fees and expenses associated with their company’s 401(k) plan, with 48 percent who agree strongly.

However, this general awareness among employers does not translate into worker awareness and understanding. While most employers (73 percent) believe that their employees have a clear understanding of 401(k) fees, the findings from the survey suggest a major disconnect: Only 29 percent of workers indicated they were aware of fees.

Another significant contributing factor to workers’ awareness of fees is their level of involvement in managing their retirement savings. The survey found that workers who agree they are very involved in monitoring and managing their retirement savings are more than twice as likely to be aware of fees than those who are not very involved (35 percent vs. 16 percent). Nonetheless, the levels of awareness among both groups can be characterized as low.

Enhanced Summaries, Model Charts

These survey findings support the need to enhance retirement education programs and employer communications about fees by expanding electronic delivery methods and offering easily understood summaries (see, for example, the model charts for reporting fund fees proposed by the U.S. Department of Labor). Such enhancements should underscore the importance of participants taking an active role in managing their retirement accounts.

“As policymakers contemplate new legislation and regulations regarding fee disclosures, it’s important to recognize workers’ preferences in receiving information about fees in an electronic format,” says Collinson. “The key is to strike the right balance of useful information that will help workers make more informed decisions about their retirement savings, will be easy for plan sponsors to communicate and share with workers, and will be efficient for retirement services providers to generate.”

The survey was conducted from Dec. 16, 2008, through Jan 13, 2009, among a nationally representative sample of 3,466 for-profit workers at organizations with 10 or more employees. A follow-up telephone survey was conducted among a nationally representative sample of 596 employers, targeting executives who make decisions about employee benefits at their companies.

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

401(k) Fee Disclosure Bill Draws Support, Opposition, SHRM Online Benefits Discipline, May 2009

DOL Proposes Rule to Improve 401(k) Fee Disclosure, SHRM Online Benefits Discipline, July 2008

401(k) Fees Matter: Tips for Reining Them In, SHRM Online Benefits Discipline, August 2007

Hide in Plain Sight: Finding Hidden Fees in 401(k) Plan, SHRM Online Benefits Discipline, August 2007

Uncovering 401(k) Fees, HR Magazine, August 2004

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