Old school: The 401(k) paper chase

Ever wonder why the retirement advisor community, the Department of Labor and the AARP never seem to see eye to eye?

While the animosity between the industry and the Feds is one thing, the seemingly benign and pro-retiree AARP continues to build a divide between the public and retirement professionals - and a new study seems to reiterate one particularly burdensome sticking point.

According to the AARP's "Paper by Choice" research survey, people of all ages - seniors in particular - are said to prefer receiving all of their retirement plan information in paper form in the mail, rather than in an electronic fashion.

The AARP says it polled more than 1,000 consumers aged 25 and over and found that the overwhelming majority prefer to get their retirement plan documents in paper form, even those who do have computer access, email addresses and admit that they spend a considerable amount of time online every day. So the AARP continues to push for paper first, electronic as a secondary and less warranted option.

"AARP has long had concerns about this approach, and our new survey indicates that the public shares those views," says Cristina Martin Firvida, AARP's director of financial security issues. "Retirement plan participants of all ages overwhelmingly prefer a policy that requires documents to be delivered in paper form, with an option to choose electronic delivery, rather than the other way around."

With yesterday's latest round of fee disclosures currently in the mail and most in the industry adamant that the extra paperwork is not only expensive but mostly ends up being discarded by recipients, the survey data demonstrates just part of the considerable divide that exists between the three parties - not to mention the overburdened consumer population.

Throughout the year, members of the retirement industry have continued to try to press the DOL to markedly simplify (and drastically reduce the costs of) the fee disclosure process by allowing electronic distribution of the multiple statements, warnings of statements, notices of changes and notices of updates that plan participants are now receiving.

I know personally I got about a dozen mailings from my own plan administrator, most of which were single page letters warning me that I was going to be getting more mailings. You know where they all ended up. (Even better, I also printed out all 14 pages of the AARP report, just to further create work for my recycling contractor.)

Earlier this year, the crowd at the spring ASPPA gathering posed that very question to the DOL's second-in-charge, Michael Davis - who's now jumped ship and returned to the private sector - and he suggested that concerns about seniors' (and participants in general) lack of access to the Internet meant that the heaping mounds of paper were going to be the norm.

That's resulted in single mailings that cost plan sponsors hundreds of thousands of dollars, and aren't resulting in particularly engaged, involved, upset or even interested participants.

This seems a little odd considering I read earlier in the week that there will soon be more smartphones out there than people, and that the saturation of electronic media, even among seniors, continues to grow.

Rather than putting the onus on more and more mailings - as high-minded a concept as it may be for your grandmother to collect more junk mail - it seems strange that the AARP has continued to bang away at this subject, rather than the great, dark secret of the whole fee disclosure debacle: the sticky detail of plan expenses.

Those plan expenses, as many critics have noted, aren't really made any clearer despite this mountain of fee disclosure paper. I recently spoke with Greg Carpenter, founder of Employee Fiduciary, a small business 401(k) administrator, who agreed that lack of clarity on plan expenses and share classes - whether a conscious decision on the part of the industry, or not - are probably a more important topic for advocates to tackle.

"In my opinion, the big guys lobbied enough not to have to show any indirect payments and they also don't need to disclose the share classes, as they said that would just confuse the overburdened investor," he said.

That share class information, he argues, also adds some value to your role as a retirement advisor and intermediary between those providers and their investments and the plan sponsors, all of whom may be slighly obfuscating the details.

"If an advisor is prepared, you can show a participant the details. Is it institutional? Does the distribution company get some amount of money for each share class? That becomes really important, and then you can unpack the details and show how much the participant is really paying in fees."

Ultimately, he agrees that clarity is important, not matter whether it comes in a pile of paper or in the form of an email - and interpretation is key to keeping your participant investors happy and involved.

"I think participants should also demand to see information at the plan sponsor fee disclosure level, and I don't see any reason that a plan sponsor wouldn't do that. If you're proud of your fees being so appropriate, why aren't you disclosing them?"  

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