The Employee Retirement Income Security Act (ERISA) 404(a)(5) regulation requires plan sponsors to provide fee information to participants by August 30. According to the bi-annual Defined Contribution Investor Survey from State Street Global Advisors, 61.8% of participants said they do not understand fees.
When participants receive their first statement reflecting the new fee disclosure regulation, they may have a strong reaction to the fees listed, even though these are fees they have always paid (see “Participant Education Needed Before 404(a)(5) Deadline”). This reaction could be based on a lack of understanding, Jake Winegrad, adviser at Moneta Group, told PLANSPONSOR.
“People don’t like paying for something that they don’t understand,” he said.
The survey also found that while 40.1% want to understand fees, only 18.7% said they would use that understanding to inform their investment choices.
Winegrad said that although he fully supports the regulation, he is concerned that the participants who carefully read their statements might begin making investment choices based solely on fee amounts. “There are many other factors that need to go into your investment election decisions,” he cautioned.