SURVEY SAYS: How Will Participants Respond to Fee Disclosure?

July 22, 2010 ( - With the Labor Department’s publication of the interim final regulation on fee disclosures, there was also an acknowledgement of those still-pending regulations on participant fee disclosure. 


And, beyond that, Congressman George Milller’s fee disclosure legislation is still “out there.”   


Setting aside for a moment whether or not you think that is a good idea, whether or not you think it can be done in a fashion that makes sense to participants, or whether it can be done on a cost-effective basis, this week I asked readers how they thought participants would respond/react when retirement plan fees are disclosed.   


The results – as you might expect – were “interesting,” to say the least.   


First off, despite a great deal of angst in the industry, the vast majority of this week’s respondents – 75.9% – thought that participants wouldn’t even notice. 


Another 14.5% thought they would yawn, though 6.0% did think they would “panic,” 2.4% thought they would cry, and half that number thought they would “smile.” 


Of course, for some readers, it wasn’t a theoretical exercise: 


One noted, “We have 75 participants in our plan.  When we first began putting participant fees on their quarterly statements, 2 employees noticed.  I was astonished.  I thought at least 50% would notice it and comment but only 2 did.”  Another said, “No angst, we already disclose the fees and get very little feedback from the participants.  If they are concerned about the fees, they can choose an investment option with lower fees.” 


But, as usual, the verbatims proved to be the most insightful: 

They'll wonder "Why do I have to be bothered with this technical stuff?  Why can't they just tell me how much my retirement will be, like they used to do?" 

Just like most information participants are provided about their retirement plan, I expect the fee disclosures will end up in the trash.  Those who don't throw it away are going to completely overreact and cause much trouble for the sponsors and the TPA. 


I suspect our participants that actually read the disclosures will not understand, will be confused, and will contact the Plan Administrator for clarification. It's just one more thing to discourage participation in my opinion. 

For the less than 5% who read it...scratch their head and go about their business. 

I will probably faint but I think most of the people where I work (most of whom are younger) won't even think to look at what the fees are. 

Half will panic and half will not even notice until the mass media picks it up and runs a 30 second story on it every hour.  Then ignorance will run the debate and there will be two sides and everyone will "have" to be on one side or the other....and the actual issues will be lost forever 

I think most probably don't even realize they get a statement.  A few will probably get pissed off, but many will probably have what I call a "whatever" reaction - you don't like it but you realize that's the way it is so you deal with it. 

Accept it but not be pleased with it 

9 out of 10 won't understand how the fees work and won't care. 

Keep working to pay the fees 

While I think most participants will not notice or read the disclosures, there will be many who will read the disclosure and say the fees are too high no matter how high or low they are.  Without knowing what other plans or participants are paying they will just see it as a cost that they would like to avoid. 

Most of them don't even know they are in a retirement plan due to auto-enrollment. 

Glance and toss. 

Frown, but what can you do? 

Nada, zip, zilch, zero, empty set 

Feel informed. 

Be surprised 

Not understand and most likely mis-interpret 



Are you kidding?  With all the required paperwork that already comes from plans, it's just another document to toss in the trash! 

Some will actually analyze the impact fees have and adjust accordingly  Most will throw it in the trash (or shred it)  with their statements 

Most won't notice or bother to read it. The ones that do read and comprehend it will complain, a lot! 

They will get angry.  It's one thing to be told as a percentage of their account balance, but another to see a line item with a negative in front of it. 


I personally feel that all of the concern surrounding fee disclosure is misdirected, as there are far bigger issues that could be addressed.  Why not spend some of this time trying to redesign Social Security or looking to implement required contributions to a retirement plan?  Even doing away with some of the annual notice requirements associated with automatic enrollment and QDIA would be a good start (for truly, if someone was automatically enrolled, do we really want to keep reminding him/her it happened so he/she can be reminded to opt-out?). 

Must absolutely be kept simple. Summary numbers on the first page of a statement, prominently displayed; detailed breakdown to show up on a separate page. 

No angst, we already disclose the fees and get very little feedback from the participants.  If they are concerned about the fees, they can choose an investment option with lower fees. 

You have identified the crux of the problem in the previous question (or set of answers).  The average participant does not speak "finance-ese."  If you asked 99% of our participants what a "bps" is, they wouldn't have a clue, or care, once you told them.  That also goes for such terms as diversification, asset mix, target date funds, expense ratios, and on and on... 

I'd love to think it was 25 basis points or less but I am afraid it is a lot higher. 

401k's may not be the best plan or the most efficient --but it's all I have to try to accumulate some funds for when I am no longer working (notice I do not say retirement--for most of us, there will not be a "retirement" like some of our parents had, and that many commercials try to make us believe we will have)  The mass of baby boomers will change the entire "retirement" landscape so thoroughly that in 20 years the discussions will be about some new product or idea.  And since I am just over 50, I may be affected by the new stuff--or not.  In the meantime, all I can do is tuck away what I can and be grateful I have a job that pays me enough to tuck away in my 401k. 

I'm all in favor of full disclosure.  I question how many participants will take the time to actually read the disclosures.  I would propose a required one-page summary disclosure, with more information available on request. 

You wouldn't buy a car or a house without knowing the fees or interest rate for your... wait, I guess some people do that after all! 

Transparency is the right thing to do, most plan sponsors have no idea what they are really being charged.  I hope fee disclosure doesn't cause participants to stop contributing or discourage them; their retirement plan is important to their future.  Service providers have to get paid for their services!  There's no free lunch, not even in the world of retirement.  Hopefully this will cause providers to be more reasonable when it comes to their fees, and help to control fee sharing when it exceeds the going price for services rendered. 

I think most participants are going to be unhappy about getting more mail (snail or electronic). 

Employees, including me, generally have the choice to participate or not participate in their employer's  retirement plan or IRA.  The employee's decision isn't really made based on fees or investment options.  It is based on a commitment to save now on a tax deferred basis for later, rather than spend everything now and a desire to take advantage of any employer contribution ("free money").  With the today's governments' (federal, state and local) increasing focus on entitlements, current and future, it is small wonder that many employees save at all. 

While the majority of participants will either yawn or not notice (tossing the disclosure in the circular file along with their Summary Annual Report), a small minority will eat up the majority of my time with their panic and general complaining. 

I know and understand the global fees charged to the plan but have not taken the time to look at the fees I am personally paying due to the investments that I have chosen. And therein lies the rub. I think participants may not notice if the fee disclosures are on a global basis because they are disclosed to large degree in the prospectuses.  I think if we have to disclose on a per participant basis, that they will pay attention.  I think pressure will grow to get the employer to pay more of the fees. 

I think it's a good and necessary idea.  Participants should have the right to know what they are paying without having to navigate myriad and fairly incomprehensible transaction reports and perform convoluted math exercises to determine what is actually being deducted from their accounts for services rendered.  Only those plans that are offering over-priced and exorbitantly expensive funds should worry about fee transparency. 

In my experience, most participants will not pay the slightest bit of attention to the additional disclosure.  You can lead a horse to water.... 

Disclosure to Plan fiduciaries is a good idea.  To plan particpants is a waste of time.  The vast majority simply are not inclined to care, let alone take the time to peruse a disclosure. 

Plans should be required to send copies of the Form 5500 to all plan participants as part of the annual statement.  My gripe is/was always that participants in unitized plans were not made aware of fees charged to the plans (as evidenced by Form 5500) by HR staff, trustee, attorneys, accountants, etc.  Participants can easily find out the mutual fund fee by looking at the prospectus, but cannot easily get a copy of the most recent 5500 to determine if these internal and/or consulting fees are being charged.  In some previous lifetimes, those fees calculated out to be 10-30 basis points per year on top of the 15-135 bps charged by the funds.  There are some employers that do not charge the plan for the extra expenses (considered another benefit to employees) and I am sure that those participants would be very pleased to find out about this extra benefit. 

Participants will only freak out because they have long held the belief that their plan is free.  The noise will be less in the larger market, because fewer costs are passed on to the participants. 

Most participants don't read anything we send them now.  I'm not sure why fee disclosures would be any different. 

The average participant has no idea what goes into administration of their retirement benefits and will not understand what would be considered "reasonable" when it comes to fees as most plan sponsors can't do that themselves 

Most of our funds fall into the 75 to 100 bps category; however we do have a couple of indexes that fall in the 50 bps range and a couple of outside the provider funds (Fidelity) that carry over 100 bps but still under 125 bps. 


Just another well-intentioned (I guess) Big Government effort to make it more costly and less efficient for businesses to operate! 

"It's reflective of our times.  Any purveyor anguished over divulging how it is making a profit needs to review its practices.  Some should be ashamed and either exit the business or adapt.. 

Capitalism is not an altruistic system.  Participants know this and, when they see what they've been paying (for very little perceived benefit), they will adjust their allocations and demand more cost efficient fund choices." 

I participate in a retirement plan that uses American Funds R2 shares.  I know roughly what the fees that are indirectly paid from my individual retirement account but am very interested to see how others will react when the fees are calculated. 

My concern is that employees may overract and not understand that cost of doing business.  That said, for plans that have excessive fees, perhaps the attention is a good idea.  Just don't want the law firms to have a field day. 

"In the 90's it was all about giving participants choice - more fund options, wider array of investment strategies. What was the result? Too many choices drove participants into selecting only 2-3 fund options because they did not have the skill and knowledge to make informed decisions. 


Now in the 00's, it's all about fee disclosure. I predict it will once again overwhelm participants, giving them information they can do very little about. And without the skill and knowledge to understand how to use that information, it will result in a big yawn from participants. And, when participants decide to use investment fees as a guide to determine where to invest their money - to the exclusion of other just-as-important criteria (such as fund strategy, risk, and age/risk-tolerance of participant) - it will do more harm than good. So really, what is the point?" 


Most people are ill-equipped to understand what these fees are and how they can (much less should) react to them. We've pushed major financial decisions on to workers without giving them the education and knowledge that adequately prepares them to make those decisions. 


Fees must be disclosed, and it's shameful that it takes legislation to force it, but the reality is that most participants will not pay much attention.  If they do pay attention, they are more likely to consider funds that performed well last year/quarter regardless of fees.  Many won't be able to put fees in context and will think they are low, without an analysis showing the effect of fees over the long term. 


Reporting fees is good information for investors but what about performance benchmarks?  With both of these and an asset allocation plan investors can make informed choices. 


I'm sure there's more to come, the pendulum always swings too far in either direction when it comes to regulation. 



I wish like anything the government would stay out of most of these areas.  There is room for the feds to establish some broad overall regulations but when they cross over into detailed running of sectors of industry the unintended consequences seem to often far overshadow the original problem.  Federal government works best when they stop at broad guidelines and allow state government, local government, and industry work out the details. 

"Some call this "biitng the hand that feeds" but plan fiduciaries have been kept in the dark long enough.  


The business model that has evolved since ERISA was designed with little or no regard for its dictates.  Providers not subject to ERISA have consciously marketed products that can subject any plan fiduciary to liability for imprudence or failure to investigate for hidden charges.  

Over the years, I've seen large plans invested in retail shares.  That can pay for a lot of golf and vacations for someone." 


My favorites were: 


I will probably faint but I think most of the people where I work (most of whom are younger) won't even think to look at what the fees are. 


Most of them don't even know they are in a retirement plan due to auto-enrollment. 


Can we just retire in peace without any additional fees? 


Some people will sue, some people will lower their contributions, some people will move their investments to lower cost ones, most people will do nothing. 


Participant fee disclosure will be similar to the reaction in "Fast Times at Ridgemont High" when Spicoli and Jefferson's brother crash the star football player's car.  "First they're gonna s**t, then they're gonna kill us!!!" 


Over the years, I've seen large plans invested in retail shares.  That can pay for a lot of golf and vacations for someone." 


“Participant fee disclosures, what are they good for?  Ab-so-lutely nuthin'.  Huuuh!!” 


Participants don't read SPDs, SMMs, safe harbor notices, special tax notices, or  annuity notices...what makes  anyone think they will read fee information? 


But this week’s Editor’s Choice goes to the reader who noted, “Generally speaking, regarding the average participant, you can buy 'em books and buy 'em books but all they do is eat the covers.”  

Thanks to everyone who participated in our survey!