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Fee transparency increases trust, which is the key to participant engagement
Fifty-eight percent of working Americans don’t know they are paying fees on their workplace retirement savings accounts, according to a study by the nonprofit National Association of Retirement Plan Participants (NARPP).
Based on the findings, NARPP estimates the amount of fees generated off of this group of participants to be around $35 billion a year, or roughly $835 per plan participant.
Among those participants who do know they are paying fees, only one in four (26 percent) could accurately answer how the fees are calculated.
“It is imperative that investors understand the fees they are paying and the risks associated with high fees,” said NARPP co-founder Laurie Rowley, in a news release. “Investors are essentially acting as their own pension managers and the consequences of not knowing fee information can have a profound and irreversible impact on a lifetime of savings.”
The study also identified a strong link between transparent fee information and the level of trust that participants have in their respective service providers. “I think the message is clear for service providers—if you want to gain the trust and loyalty of your customers, you have to do a better job at providing clear and transparent information on fees,” said Rowley. “Transparency increases trust, and trust is the key to engagement.”
Investors’ level of satisfaction with their respective service providers’ education programs remains unchanged, with just 38 percent indicating they were satisfied with these efforts.
“If we are going to improve outcomes and engagement with retirement savings, service providers need to radically change the way they are communicating with and educating their participants,” said Warren Cormier, chief behavioral officer at NARPP.
The research was conducted in April 2015, with responses from 4,368 active participants in 401(k) or similar workplace defined contribution plans.
Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.
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