Effect of 401(k) Fee Disclosure: Surely it will take time

I am serious and don’t call me Shirley.

It’s the first week of July and nothing has changed in the retirement plan industry. While June 30th has come and passed, assuming all plan providers that were covered service providers made their disclosures to plan sponsors, now what?

We never thought the earth would shake on July 1, even though fee disclosure is a seismic change in the industry.  While it’s a seismic change, it will take months and years before we feel large tremors.

What are the tremors? Many plan sponsors (hopefully most) will take their fee disclosure and do their job by shopping the plan around. Of course, some will treat their fee disclosure like the map McCroskey gave Johnny in Airplane!

Steve McCroskey: Johnny, what can you make out of this?

[Hands him the weather briefing]

Johnny: This? Why, I can make a hat or a brooch or a pterodactyl…

Plan providers can use fee disclosure to their advantage as long as they have plan sponsors who either understand the nature of their duties to pay reasonable expenses or are willing to listen. Plan sponsors have to understand that overpaying for plan services isn’t like overpaying for that item at the department store, only to find out it was discounted 30% a few weeks later. Overpaying for clothes is a bummer, overpaying for plan services is a breach of fiduciary duty.

Further tremor will be by Department of Labor (DOL) enforcement. Don’t think the DOL implemented these fee disclosure regulations without intending some type of enforcement. Surely plan sponsors that aren’t doing their fiduciary duty by reviewing their fee disclosures or haven’t asked why they haven’t received their disclosures, will get penalized on a DOL audit. I am serious and don’t call me Shirley.

Getting plan sponsors to look at their disclosures and review those disclosures with other service providers will take some time, give it to six months to a year before you see any changes in the marketplace.

Fee disclosure is an excellent conversation starter, but it just starts a conversation. Plan providers should advertise the bigger picture; cost is a factor, but not the only factor. Consider quality of service and quality of price if you are a plan provider that can beat the current provider on both ends, go for it. I just think being cheaper isn’t a true value proposition for the plan provider and the sponsor.

Change is coming to the retirement plan industry and fee disclosure was just the first shot in a bid to improve transparency and improve the retirement savings of all plan participants.

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