Fee disclosure rules have had little to no impact on plan participants when it comes to knowing what they pay in fees and expenses on their defined contribution plans.
According to a recent LIMRA survey of DC plan participants before and after they received information about their plans’ fees and expenses, 50 percent of plan participants said they did not know how much they paid in plan fees and expenses before the fee disclosure notices went out and after.
“The disclosure notices — or the discussion of them — did seem to improve the knowledge of those who believed they didn’t pay any fees or expenses,” said Alison Salka, corporate vice president and director of LIMRA Retirement Research. “There are nearly 75 million workers who participate in defined contribution plans in the United States. Our study found that 22 percent of participants believed they didn’t pay fees and expenses after receiving disclosure notices, compared with the 38 percent in our first survey, prior to disclosures going out.”
The study found that many participants overestimated the amount of fees and expenses they pay in their DC plans. Forty-two percent of participants believe they pay 10 percent or more — with over than a quarter of participants believing they paid 25 percent or more in fees and expenses.
On average, DC plan fees and expenses range between 1-2 percent, depending on the size of the plan and the participants’ allocation choices. LIMRA’s study found that less than one in three participants who thought they knew how much they paid estimated their fees and expenses to be under 2 percent.
The survey found that 7 in 10 participants who said they knew they paid fees and expenses believed those fees and expenses to be reasonable, similar to what LIMRA found in its survey prior to the disclosure notices being sent.
“There was much speculation on how consumers would respond to the disclosure notices, yet our consumer surveys and discussions with plan service providers indicate that there has been limited reaction to learning about their fees and expenses,” said Salka. “It’s important that participants understand not just the cost of their plan but its value and role in creating retirement security.”