401(k) Fee Disclosure Befuddles Small Companies

By Jessica Toonkel

Source: http://ebn.benefitnews.com

A recent rule that requires companies that service 401(k) plans to disclose what they are charging employers for their services is leaving many small business owners with more questions than answers, according to a new study.

As of July, 401(k) plan providers, which include financial advisers, fund companies and plan record keepers, had to provide employers with documentation of all the fees they charged.

The goal of the fee disclosure, which was mandated by the U.S. Department of Labor, was to help employers better understand the fees they pay.

But a new study scheduled released this week shows that 83% of small business owners, or those with 100 employees or fewer, have more questions about what the fee disclosures mean.

Sixty-three percent of companies surveyed said they were not prepared to answer employees’ questions about 401(k) fees. Under the rules, employers were required to begin disclosing plan fees to employees in August.

Specifically, small business owners do not understand if the fees they are paying are appropriate or too high. Forty-five percent of the 500 respondents said they thought 4.00% was a reasonable fee to pay for a 401(k) plan, according to the study, which was sponsored by ShareBuilder 401k, which provides plans to more than 3,500 small employers. The average all-in 401(k) fees paid by plans with less than $1 million in assets is between 0.99% and 1.83%, according to a 2011 study conducted by Deloitte and the Investment Company Institute.

“It really surprised me that these businesses think that 4% is an acceptable amount,” said Stuart Robertson, president of ShareBuilder 401k.

While the fee disclosure statements are helpful for those employers that take the time to delve into them, they are lacking in that they do not provide any guidance on how much employers should be paying, employers said.

“There should be some kind of industry average or benchmark,” said Steve Hazelton, chief executive officer of Newton Software, a San Francisco-based software company with 12 employees. “That would really be helpful.”

But even with more information, many employers may remain in the dark about the fees they are paying because they have not read the documentation.

Only 50% of the small business owners surveyed by ShareBuilder said they recall receiving the new documents at all.


The cold, hard truth of 401(k) fee disclosure

By Andy Stonehouse
Source: Benefitspro.com

For the better part of the last eight months, I've been hearing about - and writing about - the great expectations attached to the DOL-mandated 401(k) fee disclosures. They created minor mainstream headlines for an industry that, despite its huge resources and massive financial holdings for so many American workers, doesn't get a lot of mainstream media coverage.

And now the day has come, the Aug. 30 deadline for the first component of participant fee disclosures, and what should arrive in my mail box but my own actual fee disclosure overview, part of my company's 401(k) plan.

Rather than being the phone book-sized pile of impenetrable paper many hinted might be a reality - prompting the still somewhat unresolved tug-of-war with the Labor Department regarding the eco-friendly notion of all-electronic disclosure statements - it's a pretty simple document.

Painfully simple, in fact. I know the new-and-improved quarterly statements, officially due Nov. 14, might carry more heft and depth, but this new annual overview left me - after eight months of anxious anticipation - a little underwhelmed.

As you've probably found in your own recent drive toward the deadline, the necessary information shouldn't come as a big shock to any participants who have even a vague interest in the management of their retirement funds.

Which, as has been previously noted, seems to make up the larger percentage of set-it-and-forget-it or "why am I even contributing to this any more if I continue to lose money" participants, nationwide.

Nonetheless, my own personal hard, cold facts - the general plan information, the potential general administrative fees and expenses and the potential individual administrative fees and expenses are pretty concisely laid out.

Nothing's hidden - not to say that it was before - and the general details are there in a form that's much easier to wade through than the 900 page disclosures attached to my annual credit card or bank fee statements.

The biggest section of the whole eight-page disclosure is the investment information, a concise chart of the various stocks, bonds and TDFs (who knew I had so many TDFs?) and their performance.

The one-year and five-year rates of return are, as we've discussed to death, not great, but the 10-year averages are more positive.

And that's that for the paperwork. So I called my representative to ask for an interpretation, and a dollar amount. He was pleasant enough, and after a brief recap of the details, he laid it on the line: My fees, for my fund, total $1.06. About the price, with tax, of a Sausage McMuffin at McDonalds.

Really? Yes, really. Not some outlandish and exorbitant price tag that was going to send me screaming to divest and put everything in gold funds, or pharmaceuticals, or Chinese cigarette companies? Yep. A buck and change.

He also had some good news about the account, overall: "You're not doing too badly. There have been some ups and downs this year but you're actually on track to make some money."

Is it time to double down and put more in the fund, I asked?

"Sure," he said. "It's up to you."

And so the moment came and went, as will for the millions who get their statements in the mail, though the vast majority will ignore them like another mailing from their car insurance company or an online gift basket catalog.

Those who do pay attention may now have a more vested interest in consulting with an expert, and that's where you come in. So I would encourage you to take advantage of that opportunity.

 


The Silver Lining of 401(k) Fee Disclosures

By Jonathan Anderson

Source: benefitspro.com

In all of the recent – and perhaps herculean - efforts to develop and distribute fee disclosures, a proverbial “silver lining” actually exists.

Service providers have spent much time, effort, and expense (sometimes great) in complying with the Department of Labor’s service provider fee disclosures, effective July 1, 2012.

I also realize that service providers and employers, now focused on providing participants with the participant fee disclosures, generally effective August 30, 2012, are expending similar time, effort, and money it took for the service provider disclosures.

I further recognize the disclosures contain some additional fiduciary obligations that could be challenging (e.g. reporting to the DOL any service providers with deficient disclosures; possibly being penalized and/or sued for breaches of fiduciary duty; et cetera).

However, there is a silver lining surrounding the valuable and critical benefits resulting from the disclosures.

Service Provider Disclosures:

One of the first benefits is that plan fiduciaries now have a more compact and precise tool to help determine the actual services provided by a vendor, and the reasonableness of the fees for such, to a plan.

Since determining the reasonableness of the services and fees under a service provider arrangement has always been a requirement of the fiduciaries (to avoid a prohibited transaction), the disclosures should simplify what had been a complex process for most fiduciaries. For other fiduciaries, perhaps this will be the first time a formal determination of an arrangement’s reasonableness has actually been made.

With the new disclosure, the determination process has been made easier for the plan fiduciaries, and can allow them to make more informed decisions.

The same benefit applies with respect to documenting the process  of determining of an arrangement’s reasonableness. By having a disclosure describing and summarizing the services, fees, and the parties providing the services and receiving the fees, the fiduciaries’ documentation process has been simplified. In addition, documenting the process could aid the plan sponsor/plan fiduciaries defend any legal claim that the services and fees were not reasonable.

Another benefit is that the disclosures allow fiduciaries to use more of an “apples-to-apples” comparison of one service provider’s services and fees to another service provider’s services and fees. Comparisons may be used to further justify staying with the current service provider, or to explore whether switching to a different provider might be better.

Yet another benefit is the disclosures allow fiduciaries to help identify whether any changes to the current arrangement should be explored and/or made. For instance, after reviewing the disclosures made about the investment alternatives in the required summary chart format, perhaps the plan fiduciaries may decide to add or modify the investment alternatives from which a participant may choose to invest his/her account balances.


A Push for Retirement e-Communication

Industry groups are urging DOL to end paper disclosure requirement

By Brian M. Kalish
Source: eba.benefitnews.com

As new retirement fee disclosures go into effect this summer, a coalition of 15 retirement industry groups are urging the Department of Labor to allow broader use of electronic communication for retirement plan participant disclosures, which are now mailed in paper form to plan participants.

"It's just the way technology is going, you've got people of all ages using the Internet," says Brian Tate, VP, banking and securities at the Financial Services Roundtable, one of the agencies pushing for the changes. "We think it's just an effective way for our members to reach out with their customers."

 

The drive for e-disclosure

Disclosures are there to help plan participants properly plan for their retirement, but "paper is counter-productive to that," says Anne Kim, managing director for policy and strategy at the Progressive Policy Institute, a Washington-based progressive think tank. "Paper is static, it's outdated. If the government's goal is to really help people take charge of retirement, they are going in the wrong direction."

Judy Miller, director of retirement policy at ASPPA - another group advocating for the changes - says there are many reasons why this idea is so valuable, including that it is just easier to read information online and there are many more presentation tools that allow for simplification of sometimes complex information.

"There is an awful lot of paper going out already that is just getting trashed and it's a waste," she says. "There will be even more with the new disclosure rules kicking in, and depending on the nature of the investment, [people] will be getting, in some cases, a box of paper. And we don't think they will be reading it. We think it will be better if they were encouraged to go online where it's easier to drill down and get something out of it."

But, Miller stresses that the industry groups are not saying eliminate paper if a plan participant wants it, rather make it opt-in for paper, rather than opt-out. From a policy standpoint, using defaults such as automatic enrollment and default investments encourages good behavior, Miller says, with people getting more information out of information delivered electronically.

E-communication further allows access "anywhere, anytime, with the device of the user's choosing, and with a better filing system than paper notices," writes Ohio State University Law Professor Peter Swire, in a white paper, "Delivered ERISA Disclosure for Defined Contribution Plans."

That flexibility is important, Swire says, as with paper being stored in one place, "the lack of geographic flexibility can be an obstacle to examining documents and making investment decisions."

There is an additional cost savings involved, Swire says. While the preparation time to meet legal requirements would be the same, there is near zero marginal cost to send a few or a few million disclosures.

 

Will it happen?

The 15 trade associations pushing for the changes sent a letter to DOL at the end of March asking for the policy change, but have yet to receive an official response. "I think that the Department is aware of our concerns, but if you take a step back, you see more and more people, regardless of age, using the Internet and technology to communicate in a way that we couldn't think about five years ago," the Roundtable's Tate says.

Miller adds that while ASPPA is hoping that DOL will act, "we are, frankly, also talking with people on [Capitol] Hill. Because if DOL doesn't act, we are hoping Congress will give them a nudge."

It's inevitable, Kim says, that at some point DOL will change, but "it's a pity in the meantime that people are losing opportunities to take a more active role in managing their savings and getting access to the information they need while DOL sits on their hands.

"There's been enough interest on" moving to e-communication in government, such as IRS e-filing and paying parking tickets online. "The fact that DOL is behind will become so much more obvious," she says.

Tate says that in the end is it about the consumers as "we want to get the information to them as quick as possible. ... We do know they are working in a fast-paced environment ... let's try to make [this] as easy as we can."

Meanwhile, the DOL says in an e-mailed statement to EBA that it has "received a variety of letters on this issue in recent months and ... continue[s] to consider the issues raised in this letter and others that expressed differing perspectives and concerns. EBSA has not yet completed its broader evaluation of the current regulatory standards for the electronic distribution of disclosures required by ERISA, including the potential impacts on the rights and interests of plan participants and beneficiaries."

DOL says in the statement that in the interim, "the Department's current regulation and other guidance on electronic disclosures to participants and beneficiaries are available to plan administrators."

The letter to Phyllis C. Borzi, assistant secretary for the Employee Benefits Security Administration, is signed by 15 trade groups and Miller says that number is very helpful. "I think it's helpful for regulatory agencies when [they] don't have all of us coming in separately," she says. "When we can resolve our positions instead of ... telling them different stories."