Asset Mix | Published in June 2012

Preventing a Fee Backlash

Cut through the confusion surrounding fee disclosure

By Judy Ward | June 2012
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Illustration by Jessica Fortner

What is your goal for the new participant fee disclosure? “Do you want to be a sponsor who just complies with the regulations? Or do you want to step back and say, ‘OK, the purpose of the disclosure is to explain to employees what they are paying and what they are getting’?” says Troy Hammond, president and CEO of Santa Barbara, California-based Pensionmark Retirement Group. “The reality is, if you just throw all this data at people, it is going to be confusing. So we really are encouraging sponsors to get out in front of it.”

New U.S. Department of Labor (DOL) regulations for fee disclosure require that this information be in participants’ hands by August 30. Employers need to think beyond simply meeting the requirements and more about providing clarity—in part because the required disclosure includes a slew of fees that a plan participant might potentially pay; but some plan participants will not pay all of those (such as brokerage-window fees for self-directed accounts, loan fees and/or fees for investments they do not hold), says Devyn Duex, Pensionmark’s vice president of client relations. “Some people are going to take a calculator and add up all the fees,” she says. “And they may go to you and say, ‘You said I was paying 1.3%, but this says I am paying 2%.’”

The new regulations require plan sponsors “to provide a bevy of information to participants,” says Craig Hoffman, general counsel and director of regulatory affairs at the Arlington, Virginia-based American Society of Pension Professionals & Actuaries (ASPPA). But while the regulations require including a comparative chart on investment performance, he says, they do not require that sponsors provide fee-benchmarking data.

Think of the new disclosure as an educational opportunity, as opposed to just a regulatory filing, suggests Scott Parker, senior manager for Deloitte Consulting in Minneapolis. “The idea is, ‘Let us explain what those fee structures are and what it means for you and, as a plan sponsor, how we make sure the fees you pay are competitive,’” he says.

Focus on context, says Joshua Itzoe­­­, partner and managing director at Greenspring Wealth Management’s Institutional Client Group in Towson, Maryland. “I have found that being upfront
and transparent with participants about fees, and trying to help them understand the fees and how they compare, actually builds a lot of trust. It is when the answers are not specific and participants have to come and put you on the spot—that is when you can create a feeling of something being hidden.”

“It is better to be proactive,” says Thomas Reese, a partner at Conrad Siegel Actuaries in Harrisburg, Pennsylvania. “If this is a surprise to employees and there is a backlash, you could really be backed into a corner.”