Asset Mix:Preventing a Fee Backlash
What Participants Need to Know
Ideally, sponsors started preparing for this new era of
transparency six, 12 or even 24 months ago with a fee audit, Itzoe says. “It is
better to know that you have a problem and give yourself time to fix it, rather
than figure it out later,” he says.
And some sponsors may need to be prepped by advisers about
plan fees before the initial disclosures, Duex says. “They need to understand
what participants are paying, so they can field questions,” she says.
Most sources interviewed believe it makes sense to mail a
concise written communication in addition to the required disclosure. A
two-pager could work, with the first page explaining that participants will
receive a fee disclosure as part of the new DOL requirements, says Tom Kmak,
CEO of Lake Oswego, Oregon-based Fiduciary Benchmarks Inc. Briefly explain that
the sponsor has a legal responsibility under the Employee Retirement Income
Security Act (ERISA) to ensure fees’ reasonableness, and offer examples of
exactly what the sponsor does to do that, such as benchmarking fees annually.
Too Much Information?
Overall, the amount of benchmarking information participants
should receive will vary somewhat from employer to employer, sources say. “You
have to know your participant base and how they best receive information,”
Parker says. For a very engaged group, giving more details may work well. But
for most participants, a simple communication should mainly explain the plan’s
fees and what the sponsor does to ensure their reasonableness.
Parker advises against offering extensive fee-benchmarking
data. “I think going into detail is too much, although the human resources
department should be ready to [do so] to explain it,” he says. “This is already
complicated, [so] if we start making it more complicated, it is not going to be
helpful to participants.”
That said, most sources recommend providing participants
with only basic fee-benchmarking information. “From a participant perspective,
they just want to know: ‘What is the average person paying, and am I above or
below that?’” Hammond says.