401(k) Disclosures Help With Fees, Not Transparency
When workers finally received a statement explaining their 401(k) plan fees last year, plan sponsors were geared up for a deluge of questions.
But, in fact, call centers were not ringing off the hook and the long-awaited fee disclosure statements seem to have been a non-event.
"We're seeing very little reaction overall," says Alison Salka, director of retirement research at LIMRA, an industry-sponsored group.
Even though workers received detailed information about the cost of their 401(k) plan, half of them still do not know how much they pay in plan fees and expenses, according to findings that will be released next week by LIMRA.
Among workers who were able to estimate how much they pay in 401(k) plan fees, 42 percent said that they pay 10 percent or more, which is extremely overestimated, says LIMRA, which surveyed more than 2,000 plan participants in January.
Some studies estimate that participant fees and expenses range from .28 percent to 1.46 percent of assets, based on the size of the plan. Large plans have lower prices.
It's not totally clear why there has been little reaction to the fee disclosure statements. "It seems that they either have not read it, or it's too long and complex to dig through," says Toni Brown, a senior investment consultant at Mercer.
Because workers are weighed down by so many financial issues, they may put 401(k) fees on a back burner, Salka says. And it also can be difficult to read the disclosure statements and know if the fees are reasonable.
The annual 401(k) disclosure statements were very lengthy — some are over 30 pages. "And there all kinds of footnotes," says Jim Marshall, president and founder of Spectrum Investment Advisors, which monitors and evaluates 401(k) plan investments. "It's a little bit overwhelming."
For some workers at least, the statements have been a wake-up call. Since the 401(k) fee disclosure statements started to go out in August, the number of plan participants who believe that they do not pay any fees or expenses has dropped to 22 percent, from 38 percent last summer, according to LIMRA surveys.
After they received the fee statement, a few workers have adjusted their plan. For example, 22 percent changed their investment allocation and 17 percent rebalanced their funds, LIMRA says.
But even if many plan participants simply tossed an unopened fee disclosure statement into the trash bin, "The good thing for them is that it has made all of the plan sponsors really pay attention to fees," says Brown.
That has put pressure on plan record keepers to make changes. For example, most record keepers have stopped requiring plans to only include their own fund family, Marshall says. As a result, 401(k) plans can get lower fees and better performance.
"And the winner is the plan participant," Marshall says.