The most daunting certainty of the Department of Labor's new 401(k) fee disclosure regulations may not be the rules themselves, but the aftermath of employee confusion and/or outrage.
Plan sponsors and service providers can take diligent steps to become compliant, but it's going to take efficient communication efforts to prepare participants for what's coming down the pike.
Know the effective dates
Sure, you know that in February, the DOL clarified disclosure rules and pushed back the compliance date. But are you aware of the new dates?
Pick a 'point person'
Most employees don't understand that there may be an Investment Oversight Committee (or at least it's recommended) for 401(k) plans, says Trisha Brambley, partner, Retirement Playbook.
Brambley served on the DOL’s ERISA Advisory Council, and has prepared DOL recommendations on target-date fund analysis, stable value issues and participant financial education.
Know what must be disclosed
It sounds like an no-brainer. But if plan sponsors are confident they know what must be disclosed, they can reiterate in plain language what participants can expect to see in their plan statements.
According to Drinker Biddle, a benefits and executive compensation law practice, there are three basic disclosure requirements: services, status, and compensation.
Understand and communicate the fees and expenses associated with a typical retirement plan
According to the Department of Labor, plan fees and expenses generally fall into three categories:
- Plan administration fees
- Investment fees
- Individual Service fees
Click here to understand the differences in these 401(k) fees.
Provide an understanding of services provided through the fees
Aside from the management of the fund, the fees can include employee communication and/or education, say experts at Financial Finesse. If it does include financial education, such as workshops, webcasts, a financial helpline, financial planning sessions, and/or online financial guidance, this can be an opportunity to let employees know they are available and what they’re paying for so they use and appreciate the benefit in order to obtain their financial goals.
Use the fee disclosure as an opportunity for retirement education
Experts at Financial Finesse say they repeatedly find that less than 20 percent (17 percent last year) of employees are confident they’re on track to retire. This is a huge issue as you probably know for employers and they can use the fee disclosure to turn something of a hassle into a positive-- similar to how the credit card act raised awareness, fee disclosure can do the same thing with retirement preparedness. Benefits of the plan to communicate to employees:
Show employees how your plan fees compare to the industry average
Employees in small and mid-size company plans are often subjected to paying 2 to 4 percent in fees annually on their 401(k) account balances, but there’s no really need for costs to exceed one percent for everything, says Forbes contributing author Stuart Robinson. "By staying below the one percent threshold, employees can accumulate tens if not hundreds of thousand dollars more savings over a thirty year career."
In its examination on plan fees, AARP concluded an employee who has been working 35 years and contributes about $5,000 each year to a 401(k) plan, with an annual return of 7 percent and no fees would earn about $469,000 over the 35-year period.