This week I asked readers what they thought about retirement plan fee transparency generally – and how much of that should flow through to participants.
First off, some good news for the Department of Labor – a clear, although not overwhelming majority ( 56.3% ) thought that the recent initiatives to enhance fee transparency would – increase fee transparency. Only about 4% thought they would decrease transparency, 13% said it would have no real impact, 11.5% were not sure what impact they would have – and about 5.5% weren’t sure what DoL initiatives we were referring to.
On the other hand, the vast majority of the 16.4% who opted for “other” seemed pretty convinced that the net result would fall somewhere between no impact at all ( “It will generate a lot of consulting fees but not much else,” noted one reader) – and REALLY fouling things up ( “They will muck it up and create more confusion,” noted one).
Respondents were much less optimistic about involving Congress in the issue, but nearly two-thirds said that they thought we need more fee disclosure for participants. That confidence may, at least in part, lie with a resounding confidence expressed about the fees currently being paid by those plans. More than a third ( 34.1% ) said they were satisfied with the fees their plan/participants were paying, and nearly a quarter ( 23.6% ) said “very much so.” One in ten said they weren’t pleased, about twice as many ( 17.6% ) said they were “more or less” satisfied, and for the remaining one-in-eight, the question wasn’t relevant (they were either providers, or not in a position to have an opinion on fees).
More than a third ( 36.3% ) said that we needed to get Congress involved ( “Without a mandate it won’t be done” , noted one), but 31.3% said no (” Congress stepping in rarely improves anything,” observed another), and nearly a quarter said “I hope not” ( “I would rather not see them get involved as they do not understand our business well enough to get it right,” said one). About 8% weren’t sure.
As interesting as the statistics were, however, the verbatims were, as always, a treat. Here's a sampling:
"Now, if they would step in and require each recordkeeper to charge in the same manner so that plan sponsors could compare apples to apples when looking at costs...that's another story."
"More documentation and paperwork that will only confuse the participant in the end, alienating them, causing them to actually read fewer of our communications that are required by such rules intended to help them understand more and be more active in their retirement savings decisions!"
"Most plan participants don't even get involved in their fund selection other than when they sign up. Information is important, and we as plan sponsors have the duty to insure that the fees are reasonable and transparent; to expose all the participants to them would only confuse them. Even I am somewhat confused."
"I'm for more disclosure even though the vast majority of participants will pay no attention to it."
"It would be nice if Congress would include information on the COST of providing these services - web sites, recordkeeping systems, Trust accounts, etc. instead of creating alarm and distrust for all providers".
"We don't really need more or less disclosure but instead need "helpful" fee disclosure in plain, calm language that can be understood by ALL employees (not just the executives) and that will not cause unnecessary suspicion and panic. (Fat chance.)"
"I don't think the majority of participants give a rat's buns about any literature put out explaining about the plan except how to participate or not."
"I am not sure how much participants will pay attention to it. We seem to have a hard time getting the participants to read what they get now."
"It needs to be available to those who want it. Easily available. But in a standardized format so there isn't any spin by better "marketers".
"I think the intent of disclosures needs to be balanced against the expense to provide the additional disclosures and the impact that may have in the end to to cost to participants and plan sponsors."
"Too much information is not
useful, and defeats the intended purpose of the exercise."
"Fees should always be disclosed, period!"
"I think sponsors should disclose plan fees, but most participants don't read anything sponsors send out anyway. We sent out seven notices regarding a plan change and we still got irrate participants calling because they did not know it was coming."
"It's difficult even for plan sponsors to understand the fees our participants are paying."
"I'm the type that likes to know what I'm paying for something. All I see on my 401(k) statement is a decrease in the bottom line. But my broker doesn't seem to be hurting any."
"Not disclosing the total cost of the investments participants are required to use in a 401(k)plan is like going to the store to buy food with no prices listed, having the bar code scanned, your checking account debited for the cost and not finding out what the price was until you review your bank account online or receive your monthly statement...except you never get a true accounting in investment cost, because it reduces your "gains" or increases your "losses", both nebulous accounting terms."
"As a plan sponsor and more knowledgeable then most participants, I have a hard time discovering all the fees. This process should not be so hard and the industry needs to use common English in their disclosures. A one page summary should say it all."
But this week's Editor's Choice goes to the reader who observed that "The problem when comparing fees in many plans is similar to the "apples to oranges" cliche...it's more like comparing apples to orangutans! More fee disclosure should at least keep it all in the fruit family!"
Thanks to everyone who participated in our survey!
|I think plan sponsors are beginning to grasp their fiduciary obligation to understand what is being charged and how. I think the DOL will force the issue.|
|They will muck it up and create more confusion|
|I think it will add more information that will just confuse many participants instead of helping them.|
|I work with small or micro 401(k) plans. For the most part plan sponsors don't understand the physical bill they receive, much less understand netted fees and underlying investment expense. Fee transparancy is a nice thought, but it's just going to confuse people. Now, if they would step in and require each recordkeeper to charge in the same manner so that plan sponsors could compare apples to apples when looking at costs...that's another story.|
|Huge hassles for employers and providers in providing detailed information...which participants will not read or care about. If a particiant chances to read it - they will be confused.|
|It will generate a lot of consulting fees but not much else.|
|If they aren't already asking or getting disclosure already, they should be found in breach of their fiduciary responsibilities,|
|Our research shows that about 1/4 of sponsors are unaware of DOL efforts. Those who are aware, which surprisingly does not vary by plan size, are not terribly concerned about the impact. Some say more information is better, others say only better information is better.|
|the recent steps probably will not directly have much impact but will indirectly. Due to the recent publicity and DOL action more and more providers are developing fee transparent products and plan sponsors are expecting that from the marketplace.|
|with language the "common man" can understand|
|It depends on the implementation step. The way it was written originally should get someone fired. Putting bias into the approach has caused a lot of discussion around "full and fair" that has been a waste of a lot of good people's time. I'll restate - I'd find the guy who authored this thing and fire him.|
|Any disclosure of plan fees without context will cause confusion - what expenses would be incurred if the participant saved outside of the plans, how do the plans fees benchmark to other similar plans. Who has that data, how will it be collected? This is a huge gap in my mind.|
|I have asked for this information by $$$ for employees. No response. (the fees are in the prospectus) which noone can understand. I think it is crucial given the amount of funds that are growing in people's accounts. Of course, once something is passed, they may find a different route for hidden fees... or pass on that cost to the plan.|
|Increased cost to employers and participants due to the cost of providing the types of disclosures the DOL seems to want to implement. I agree that participants should be given information on the costs associated with their 401(k) plan that are passed on to them, but the level of detail will likely only serve to decrease participation or postpone participation amoung younger employees - who would most benefit from the programs.|
|The DOL did not go far enough - Bundled providers are not required to show the true revenue they are utilizing from their proprietary funds and Insurance company Guaranteed Accounts are not required to show the revenue share.|
|It will increase transparency and cost to participants. There will be a backlash when participants realize what they pay.|
|Some fees are complex and the explanatory text will likely go unread by participants.|
|Add to confusion about actual expense ratios, but hopfully delineat who is getting paid what.|
|long, expensive, process underwritten by investment companies|
|Increasing transparency of fees on an accounting basis. In other words, just because the line items will be fully disclosed does not mean there will be less confusion. There will be more confusion.|
|The DOL giveth and the DOL taketh away. They will say they are making them more transparent, but they will also find a way to let the charges be obsecured because that's what the asset providers want.|
|Depending on how this is communicated out to participants it could be received negatively. Working in the retirement industry for over 20 years I have often heard "they are stealing my money"|
|Nominal increase in reporting amount of fees and uses of $ but revenue sharing arrangements remain hidden.|
|more documentation and paperwork that will only confuse the participant in the end, alienating them, causing them to actually read fewer of our communications that are required by such rules intended to help them understand more and be more active in their retirement savings decisions!|
|Major confusion for all involved.|
|Make plan administration more complex|
|I think that it will give the appearance of increasing fee transparency, but until ALL providers (yes, I'm talking about the insurance companies) are required to disclose ALL of the fees, the steps are only paliative at best.|
|Regarding the average American's retirement benefits, I think career politicians are apathetic and, therefore, not likely to be of any real help. I think we need to put Congress on the same kind of retirement benefits that you and I have.|
|I think there should be some rules on the amount that the fees are, some maximums, and the plan sponsor should know what wheeling and dealing has gone on concerning the trust, but otherwise fee disclosure is mostly bull turds.|
|It would be nice if the providers would just be honest. I'm not naive. I just believe in honesty and fairness.|
|Yes because the recordkeepers will not do anything otherwise.|
|If plan sponsors and TPAs are not willing to disclose fees to participants, then unfortunately, it may require legislation to do so. As a government plan sponsor, we disclose all fees and revenue sharing to our participants.|
|Participants are confused enough when it comes to the retirement savings concept. To add detailed fee related information will cause more people to not take any action. Keeping the plan sponsors responsible for the fee fairness is the best method. Also, the cost of the fund is not the most important (or even second most) in choosing an investment. Cheapest does not mean best as it can hurt performance and service.|
|No; however, I do believe that the publicity and evidence that Congress will create on the issue will provide the boost that the DOL needed to get it done.|
|Most commentary we hear thinks the solution should be between vendors and sponsors.|
|The SEC - as currently structured - is either incapable or unwilling to bite the hand that feeds it. Ditto, FINRA. Public policy needs should dictate something so important, not industry lobbyists. Full disclosure should be a fact, not an issue|
|I think that Congress has enough other important issues to look into, like the use of drugs by baseball players......|
|Primarily for the bundled service providers|
|It's more important for them to have a thorough investigation regarding the use of performance-enhancing drugs in sports.|
|LWhomever, the SEC? Must be in language the average consumer can understand.|
|I would rather not see them get involved as they do not understand our business well enough to get it right.|
|Without a mandate it won't be done.|
|We shouldn't need that, if the asset providers were honorable, but GREED takes over and there is no honor among thieves.|
|Congress usually gears what they do to suit their own fancy not necessarily to best serve the public.|
|I wish we did not but because of greed and corruption you must have some regulations. The one bad apple...|
|Congress stepping in rarely improves anything.|
|Perhaps more clarity??|
|Not MORE necessarily; rather information provided in a user friendly fashion. That probably means that it needs to be personalized to show impact on that participants' balance.|
|I feel participants have been misinformed or not informed for years. I do think there is a chance for a firestorm if fee disclosure is mishandled, so I think we need an industry standard that is both simple & straightforward to educate and set an understanding of reasonable expectations on the costs of services.|
|I don't think the majority of participants give a rat's buns about any literature put out explaining about the plan except how to participate or not.|
|It needs to be available to those who want it. Easily available. But in a standardized format so there isn't any spin by better "marketers".|
|I am not sure how much participants will pay attention to it. We seem to have a hard time getting the participants to read what they get now.|
|No - it just confuses participants and scares them away from investing; any investment in a 401k plan is better than none at all.|
|Yes, but ...We have to present fees in the context of service and benefits provided by the vendor. The last thing we want to do is make all of our participants "price buyers" where everything in the plan becomes a commodity.|
|Absolutely! Not all but many RIA's, Broker's, and TPA's are charging clients for their services and receiving 12b1 and subTA fees without their clients knowledge. In my opinion the non-disclosed revenue is where the conflict of interest between the plan sponsor and the service provider is created.|
|the type that is being considered will be filed in the trash, since it will be written in typical guarded language. Very few will read it and understand it.|
|But only in easier to read, general type format|
|Though the vast majority state that current disclosure is sufficient, deeper research reveals that sponsors are seeking "better" disclosure.|
|As an employer we have always felt it was important to disclose fees to our participants. We see competitive fees and the disclosure of said as a key element of a "best of breed" retirement benefit. In short, it has been part of our culture for 10+ years.|
|Most plan participants don't even get involved in their fund selection other than when they sign up. Information is important, and we as plan sponsors have the duty to insure that the fees are reasonable and transparent; to expose all the participants to them would only confuse them. Even I am somewhat confused. In the end, participants are interested in the bottom line--how are their funds doing, are they making money, will they have enougg for retirement....|
|it should be available but not required - most participants are not that interested.|
|In general terms, not broken down item by item. IE: asset cost, web site cost, administration cost|
|I'm for more disclosure even though the vast majority of participants will pay no attention to it.|
|Transparency with respect to the long-term effect of fees/expenses must be illustrated to participants.|
|It depends on the context, see above|
|At minimum, they should see the total of all fees that they pay, either via the funds or deirectly from their account balance. No need to break out revenue sharing.|
|Participants should be aware in general what fees they are paying - but they also need to be educated about how those translate to their account. For instance, we use revenue sharing to help control the cost to the employer. But if the employer uses non-revenue sharing funds, we add a fee (usually 50 bp) to offset the reduction in revenue. It would be nice if Congress would include information on the COST of providing these services - web sites, recordkeeping systems, Trust accounts, etc. instead of creating alarm and distrust for all providers.|
|We need to ensure that participants are getting disclosure on Investment expenses and the fees the plan charges them for the 401(k) or add on services such as Advice, Managed Accounts or Self-Directed Brokerage services.|
|For standard mutual funds - no; for more complex arrangement - yes.|
|We don't really need more or less disclosure but instead need "helpful" fee disclosure in plain, calm language that can be understood by ALL employees (not just the executives) and that will not cause unnecessary suspicion and panic. (Fat chance.)|
|Not so much to participants but to sponsors.|
|We really need more fee disclosure to the plan sponsors.|
|I feel that they get everything they need and can handle|
|For those companies that don't disclose fees now, they certainly should. We list fees along with fund performance on each quarterly statement.|
|I think plan sponsors should have specific information available for those who are really interested and MAY understand it; otherwise, high level information would suffice for the average participant...who, in fact, would be paralyzed by too much detail.|
|Participants don't want to read SPDs. Fee information unrelated to performance and comparisons to other choices will not help participants make better choices.|
|Yes, but then participants need to know and care why fee disclosure is important to them. They then need recourse and alternatives when the fees are too high.|
|I think the intent of disclosures needs to be balanced aganst the expenses to provide the additional disclosures and the impact that may have in the end to to cost to participants and plan sponsors.|
|At this point, I don't feel fiduciary standards of care set the "tone at the top" in either our industry or American business. I think that, eventually, they will be the norm and will benefit and protect us, plan sponsors, and participants.|
|I think we suffer sometimes from over-disclosure. How many 'lay' people do you know who have ever read a mutual fund prospectus?|
|Fee disclosure is good and necessary at the plan sponsor level. The additional disclosure of fees and other information to participants just makes a bad situation worse. The form, structure and content of participant disclosure needs to improve greatly. Too much information is not useful, and defeats the intended purpose of the exersize.|
|Answers next page are my company 401k not my advised plan assets.|
|I believe fee disclosure is necessary to force plan sponsors to take a good look at what the participants are paying and how much it is eating away at their earnings. We pay all administrative fees, except for loan fees, so our participants' accounts are only being affected by mutual fund expenses. Participants need to be educated as to what those are and what is reasonable, again to force sponsors to take a good look at the funds they are offering.|
|It is extremely important for a participant to understand the total expense they pay to participate in their 401k Plan. It is extremely important for the plan sponsor to understand the total expenses they pay and their employees pay. It is also extremely important for the employer and the participant to understand how the Advisor gets paid and if the Advisor has any bias one way or the other. I do not think it is important and in fact think it will be confusing for the employee to understand how the Total expense gets broken down. In other words if a Vendor's total cost is 1.5%, do we need to know that .68% is for the management of the fund? .22% if for the Administrative work? The .14% if for enrollment meetings, etc. We need to know that the total expense is 1.50%. That the broker recieves .25% on all assets and that the employer has $0 billed costs. We then need to compare this to the market. If 5 other Vendors are all paying the broker .25% and the employer is being bille $0 AND they are all between 1.40% and 1.60% then we really need to focus on Service and Investment alternatives.|
|Fees should always be disclosed, period!|
|#4 needs a "not sure" option -- it's hard to say when so many fees are hidden.|
|Why does the federal government think it is best suited to legislate how to run private retirement plans? They need to get their own house in order before they start looking for reasons to get more involved in one of the only systems that succeeds without their intervention.|
|I'm not sure exactly how much I pay in fees in my 401(k) or other investments; but, I think full fee disclosure should be required and not necessarily made a part of the "small print" the most people don't see.|
|Question #3: My largest gripe with a previous employer plan was that all investment options were "unitized" which meant that the Benefits Committee approved 3% annual costs to the plan for various attorney, actuary, floor space, HR salaries, etc. but my quarterly statement did not show a single penny in fees that I was being charged. I knew about the 1% fees within the mutual fund via the prospectus. So, I was losing a total of 4% each year ... I was furious when I found out how much money I was losing especially since my mutual fund IRAs had only the 1% fee with a $10 annual fee. Since plans file annual 5500 and therefore know the exact fees charged TO THE PLAN, it would be wonderful if the DOL would require plan sponsors to put the following on participant statements: Based on costs for the 2006 plan year, 401(k) balances were charged additional 2.97% for plan expenses incurred that are separate from the fees charged by the mutual fund company.|
|As a bank, we firmly beleive in fee disclosure. We continue to loss existing and potential clients to the competition that claims they will/can do everything for free. Full fee disclosure should level the playing field.|
|We pay all plan fees.|
|We provide the data through multiple channles. The more we throw at participants, the less likely they are to read anything and the less we can expect them to participate as they are shell-shocked by DATA.|
|I am among the cynical bunch who are concerned about participants' willingness or ability to understand fees in the context of net returns. The percent who may benefit from more fee information may very well be in the single digits.|
|Although I think more disclosure is needed for participants, I believe that there is a bigger need for plan sponsors to receive additional fee disclosures.|
|I think sponsors should disclose plan fees, but most participants don't read anything sponsors send out anyway. We sent out seven notices regarding a plan change and we still got irrate participants calling because they did not know it was coming.|
|The mutual fund industry used the massive influx of IRA, then 401(k), dollars to grow beyond their wildest dreams. Their pricing model (originally designed for individual investors) has always been inappropriate for qualified plans involving many individuals. A completely separate class of funds might be the only way to go. Get rid of 12b-1 and other obfuscated fees. If there are added expenses, lay them out in the disclosures and chagre reasonable fees. Fidcuiaries should expect to realize some savings based on economies of scale and the funds cna profit.|
|There are two issues. First, the amount of fees. Second, the conflicts of interest that result from the way fees are paid. The fee amounts are, for the most part, readily available to those who look for them. The conflicts of interest are hidden. Congress needs to beef up the prohibited transaction laws to eliminate conflict of interest situations, without exception or exemption.|
|The Byzantine fee structure allowed to flourish in the financial services industry defies logic. If Congress mandates more disclosure to participants, it should also mandate that those disclosures come directly from the financial services industry, rather than burden the plan sponsors with this onerous duty - which in the end may do nothing more than cause more confusion among participants. But, I hope reform will focus on unraveling and simplifying how fees are assessed and perhaps even lowering them!|
|The real issue facing us is not fees. It is the absence of DB plans and people failing to adequately save enough through 401k plan for a comfortable retirement.|
|Congress tends to overreach and not understand the implications of their regulations. this is an important issue, but not something Congress needs to mandate.|
|On a recent American Benefits Council call an auditor revealed inconsistencies in the fees reported to employers versus the fees actually charged.|
|Fees should be performance based - not fund value based. That is - the % should decrease for poor returns even in an up market when compared to a standard bench mark.|
|I'm not oppposed to having easier-to-read documents and financial data for our particpants. But will they read it anyway? Higher industry and provider standards would be much better than Congress involvement (as usual!)|
|The problem when comparing fees in many plans is similar to the "apples to oranges" cliche...it's more like comparing apples to orangutans! More fee disclosure should at least keep it all in the fruit family!|
|It's difficult even for plan sponsors to understand the fees our participants are paying.|
|It seems that the fee disclosure spectrum is going from none, to quasi, to crazy. Disclosure is important and needed, but the proposals needs to be reduced to a workable medium or the information provided becomes just as useless as no disclosure.|
|The issues relating to fee disclosure are complicated, especially when comparing a bundled service provider receiving revenues (12-b1, sub TA etc) from plan assets vs. an insurance company utilizing PSAs and group annuity contracts.|
|I'm the type that likes to know what I'm paying for something. All I see on my 401(k) statement is a decrease in the bottom line. But my broker doesn't seem to be hurting any.|
|If there is a generic fee disclosure document that service providers fill out plan sponsors would have more information to make a better decision for their plan. They can compare apples to apples.|
|This is a lot to do about nothing! Most sponsors are very aware of the fees they pay and most fees are reasonable for services rendered. There probably are rare cases with very small plans that the fees are unreasonable and even, perhaps hidden.|
|If true transparency is attained, plan sponsors will have another tool when selecting the fund lineup and be able to see true ROI. It will also increase plan sponsor's ability to clearly communicate how the fees are charged and the effect on their account balance. Employers are not going to pick up the fees unless the federal government allows these fees to paid tax free like expenses in a DB plan. Even if the Feds make it tax free, historically one of the reasons employers adopted DC plans was to avoid administration expenses. As always, until it becomes a competitive advantage from an HR perspective as it relates to hiring and retention Employers paying fees will not be the norm.|
|As is typical fashion, the DIOL and/or Congress are hitting a fly with a sledgehammer. The marketplace has already addressed fee disclosure voluntarily. Plan sponsors and/or their advisors are well aware of fees and are asking the right questions for the most part. Proposed regs suggesting that plan sponsors need informaiton on trading costs and other fund related expenses s in direct conflict with SEC regulations. Bottom line is that it's the expense ratio.|
|If there can be a simple communication that shows fees and who they are being paid to and has one section covering fund fees and one section that covers other fees (per participant, loan, distribution etc.) that would be ideal.|
|I am a consultant for a TPA, we are 100% transparent with our fees and so are our custodians. I feel the industry has some catching up to do with fee disclosure to the plan sponsors. I believe any mandate of fee disclosure on the employee/plan participant level is too burdensome, most plan sponsors have a tough time understanding fees and revenue sharing; never mind trying to get employees to grap the concept. Work would come to a grinding halt of we had to get the plan participants to understand; I believe it is the trustees duties to know an understand fees and revenue sharing. The government requires of them to protect the plan participants from unreasonable fees, the government shouldn't shift the burdon to the employees, especially since they aren't in a descision making position, the trustees are.|
|Fee disclosure is tricky. Giving too much information to participants may give them an excuse to not participate. when in reality, most group accounts are always going to be less expensive than individual accounts, and participants may not have that knowledge. On the other hand, many plan sponsors have no idea about the total fees they pay! We need the tranparency so plan sponsors can figure it out.|
|Fees should be disclosed in the form of a percentage of assets, ie: expense ratio. If we break down each component, it will lead to confusion and the perception that fees are higher. When you go to a store, you see a price tag on an item. That price tage represents the cost to the consumer. It does not show how much the store is getting, the manufacturer, the shipping cost, the cost of the electric bill, etc. The big problem is the Insurance products on the market that do not disclose wrap fees, M&E charges etc.|
|Investment providers balk at fee disclosure because if structures like 12b-1 are removed or returned to original intent providers would have to demonstrate exactly what they do to earn the $. Plan Sponsors with revenue sharing arrangements but who also charge plan participants administrative $ fall into the same camp.|
|I believe TPA should be required to report annually to plan sponsors all fees involved in a plan, including soft money that covers fees.|
|I'm not satisfied with the Fees because it is not really clear that we are getting the best deal for our participants.|
|As long as all plans 401k, 403b, 457, and annuities have to to do the same type of disclosure I think it is great.|
|Not disclosing the total cost of the investments participants are required to use in a 401(k)plan is like going to the store to buy food with no prices listed, having the bar code scanned, your checking account debited for the cost and not finding out what the price was until you review your bank account online or receive your monthly statement...except you never get a true accounting in investment cost, because it reduces your "gains" or increases your "losses", both nebulous accounting terms.|
|As a plan sponsor and more knowledgeable then most participants, I have a hard time discovering all the fees. This process should not be so hard and the industry needs to use common English in their disclosures. A one page summary should say it all.|
|Congress is once again overmandating through sound bites that they hope will get them re-elected. Participants want to know the basics, but not the extent of fee details that may soon be required of plan sponsors. It will lead to confusion and perhaps lower participation. I wish they would let this topic alone for a while and get back to doing more important things, like grilling Roger Clemens on whether that really was his syringe or not.|
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