Getting Some Closure on Fee Disclosure

Last week the Government Accountability Office published a report regarding participant understanding of plan fees – and some suggestions to improve that situation.  This week, we’d like to know what you think – and make – of their recommendations.

In the report titled, “Many Participants Do Not Understand Fee Information, but DOL Could Take Additional Steps to Help Them”, the Government Accountability Office (GAO) states that almost 40 percent of 401(k) plan participants do not fully understand and have difficulty using the fee information that the Department of Labor (DOL) requires plans to provide to participants in fee disclosures.  To arrive at that conclusion, GAO assessed participants’ understanding of samples from several large plans’ fee disclosures (largely mutual fund fee type disclosures) and other information about fees, and asked general knowledge questions about fees.

From that sampling GAO found that 45 percent of participants are not able to use the information given in disclosures to determine the cost of their investment fee (suggesting, of course, that 55% can), while 41 percent of participants incorrectly believe that they do not pay any 401(k) plan fees.

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* 1. Generally speaking, do you feel that the participants in the plans you work with

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* 2. The GAO made several recommendations to help participants better understand and evaluate their options.  Among them was that the Employee Benefit Security Administration should require (in a manner deemed effective) that fee disclosures for participant-directed individual retirement accounts use a consistent term for asset-based investment fees (e.g. gross expense ratio).  What impact do you think this might have?

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* 3. Another recommendation of the GAO was that the Employee Benefit Security Administration should require (in a manner deemed effective) that quarterly fee disclosures for participant-directed individual retirement accounts provide participants the actual cost of asset-based investment fees paid.  What impact do you think this might have?

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* 4. Still another recommendation of the GAO was that the Employee Benefit Security Administration should take steps to provide participants important information concerning the cumulative effect of fees on savings over time. For example, steps could include ensuring disclosures cite a working, specific DOL web address for where such information is shown and requiring that fee disclosures include the agency's graphic illustration on the cumulative effect of fees.  What impact do you think this might have?

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* 5. Another recommendation of the GAO was that the Employee Benefit Security Administration should require (in a manner deemed effective, of course) that participant fee disclosures for participant-directed individual retirement accounts include fee benchmarks for in-plan investment options. What impact do you think this might have?

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* 6. The final recommendation of the GAO was that the Employee Benefit Security Administration should require (in a manner deemed effective, of course) that participant fee disclosures for participant-directed individual retirement accounts include ticker information for in-plan investment options, when available.  What impact do you think this might have?

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* 7. The Labor Department wasn't very enthusiastic in its response to the recommendations, noting that the recommendations “pose significant technical and feasibility challenges” – challenges that it cautioned may limit the efficacy of participant fee disclosures.  Beyond that the Labor Department pointed out that implementing those recommendations would require lengthy and resource-intensive notice and comment rulemaking  - and that that would require the Department to forgo other regulatory initiatives.  What do you think of the Labor Department's response?

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* 8. On the other hand, Congressman Bobby Scott (D-VA), Chairman of the House Education and Labor Committee and Senator Patty Murray (D-WA), Chair of the Senate Health, Education, Labor and Pensions (HELP) Committee – who initiated the request that the GAO examine how well participants can understand and use the fee disclosures, called the report a “wake-up call for the Department of Labor and for consumers who have 401(k) plans.”  What do you think? 

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* 9. Other comments on fees, fee disclosures, understanding of fee disclosures, lack of understanding of fee disclosures, the lack of understanding of the lack of understanding of fee disclosures, or life in general?

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* 10. What is your role working with retirement plans?

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* 11. What size plans do you PRIMARILY work with?

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* 12. Suggestions for future survey questions?  Seriously - what would you like to know about/from your fellow NAPA-Net readers?  Or what would you like to be asked?

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* 13. All responses are confidential, of course - but just in case you would like a response - or want me to know you responded - or just want to say hi - here's your chance to do so (don't forget your email)!

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