UpFront | Published in June 2012

Sticker Shock

Participant education needed before 404(a)(5) deadline

By Corie Russell | June 2012

If retirement plan participants are not educated about 404(a)(5), they may be surprised by their first quarterly statement under the new regulation, later this year. Employee Retirement Income Security Act (ERISA) 404(a)(5) requires plan sponsors to provide fee information to participants by August 30.

Jim Sampson, managing principal at Cornerstone Retirement Advisors LLC, says plan sponsors could face strong reactions from participants if they are uninformed about 404(a)(5) and its purpose.

Plan advisers should schedule educational meetings with participants and sponsors alike before the 404(a)(5) compliance deadline, he says. Participants must be made aware that the fees they see in their quarterly statements have always existed but were merely invisible until now.

The adviser should communicate that the inclusion of these fees in statements is a positive change for participants and plan sponsors. Sampson suggests explaining the benefits of fee disclosure this way: “When is the last time you bought something and had no idea what it cost? We do it every week in our 401(k) plan.” Plan advisers should also schedule a meeting with participants to teach them how to read their quarterly statements, he says.