Survey: Fee Disclosure Has Little Impact on 401(k) Participants

In response, an advocate cites the need to improve participant education

By Stephen Miller, CEBS Jul 23, 2013

On July 22, 2013, the Department of Labor (DOL) announced it is providing retirement plan sponsors with temporary relief from annual participant-disclosure requirements regarding the comparative chart of fund performance and related benchmarks, in the form of a one-time "re-set." See the SHRM Online article DOL Tweaks 2013 Investment Disclosure Deadline

New fee-disclosure regulations that took effect in August 2012 have had a negligible effect on workers participating in employer-sponsored retirement plans, according to a BMO Retirement Services survey of 416 plan sponsors.

In the survey, 80 percent of participating organizations reported that the new rules mandating full disclosure of retirement plan fees and expenses had little or no effect on plan participants.

Under the new regulations the Department of Labor (DOL) requires that plan- and investment-related fee disclosures be provided to new hires and current employees every quarter (typically as part of their account statements). The information must also be available online, along with a glossary of investment terms.

Most notably, plan sponsors believe that the additional disclosures—designed to educate American workers and help them more prudently contribute to their 401(k) retirement plans—did not change enrollees’ behavior or their perception of their retirement savings benefit. Only 1 percent of respondents reported seeing positive or negative changes in behavior. Similarly, just 1 percent experienced an increase in ill will aimed at them or the plan's record keeper.

Surprisingly, only 15 percent of plan sponsors considered the new disclosures confusing to enrollees. In contrast, 46 percent of sponsors expressed this concern shortly after last year's regulatory changes took effect.

Fee Education Needed

"The problem is that these surveys are aimed at the same people (plan sponsors) who necessitated the DOL to enact the new regulations in the first place," investor advocate and author Chuck Epstein wrote in a response to the survey posted on the website

"It is also too soon to ascertain the impact of fee education, since the regulations were passed in spring 2012," Epstein added. "After all, this was the first time plan participants were ever told what they were paying in fees, and the survey found that most plan participants did not even know they were paying fees on their 401(k)s in the first place."

Moreover, "it is unlikely that if 401(k) participants were educated about the negative impact of fees that they would voice opinions which are against their own financial interests," he noted. "Do plan sponsors want to objectively educate their own employees about the costs of their own 401(k) plans? If they did, there would not have been a need for the new DOL fee disclosure regulations in the first place."

EBRI Survey Reveals Similar Participant Nonresponse

According to newly releasedfindingsfrom the nonprofit Employee Benefits Research Institute's 2013 Retirement Confidence Survey, about half (53 percent) of defined contribution plan participants report having noticed the new fee disclosures, and only 14 percent of those who noticed this information (7 percent of all plan participants) say they have made changes to their investments as a result of the expanded information about fees.

Of those few participants who made changes, the most common actions were to move money out of more expensive investments or to withdraw money from the plan.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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