Fee Disclosure for 401k Plans Could Be Better

A recent survey revealed many plan participants would value better 401k fee disclosures from their provider.

The research was conducted by the National Association of Retirement Plan Participants, or NARPP, a non-profit that advocates for individual workers saving for retirement.

NARPP found that more than half of workers with a retirement savings plan didn’t know they were paying fees for that plan. A quarter of those surveyed knew about the fees, but did not know how the fees are calculated.

For an individual saver, 401k fees can add up to a substantial cost over a lifetime’s worth of saving. It’s estimated that participants who do not know about their fees accounted for about $35 billion in fee revenue each year, which breaks down to $835 per participant.

Only 38 percent of those surveyed reported overall satisfaction with their plan provider’s educational programs. Survey respondents reported greatest satisfaction with programs that provided basic investing knowledge and information that would serve the plan participant’s best interest without conflict.

Laurie Rowley, a co-founder of NARPP, said the survey results show how important it is for plan providers to be transparent about fee information, as transparent fee disclosure earns participants’ trust and loyalty.

401k Fee Disclosure Requirements

In February 2012, the U.S. Department of Labor implemented a rule requiring providers of 401k-type retirement plans to disclose information about plan fees to participants. Under this rule, plan participants are entitled to an up-front explanation of any fees charged for plan administration or for any actions taken by the participant that affect the participant’s plan. In addition, participants are entitled to a statement, issued at least once per fiscal quarter, listing the actual fees charged with a description of the services for which the charge or deduction was made.

However, some retirement savings experts feel this 401k fee disclosure requirement isn’t working. Often, plan participants simply do not read the disclosure. These disclosures tend to be delivered together with a large mass of other disclosures and plan information, so it’s easy for them to get lost in the shuffle. Even if the participant does manage to fish out the 401k disclosure, they still may not be inclined to read it since the average disclosure is 10 pages long.

Some experts also say both the verbiage and the math involved in deciphering the disclosure statement is beyond the sophistication of most plan participants, making the information provided effectively useless.

The disclosure requirements may also not inform the participant as to certain fees paid to plan service providers. Such fees that are paid in the form of revenue sharing do not get broken down either on the fee disclosure document or on the quarterly statement, so the amount the participant is paying for that service may not be immediately apparent.

It’s possible a simplification of the disclosure statement requirements might resolve these problems. Participants in the NARPP survey responded very positively to the idea of a standardized fee disclosure statement similar to the nutrition information labels now required on packaged food. Over 80 percent of participants said such a disclosure would be useful.

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