Getting Plan Sponsors to understand 401(k) fee disclosure: Lots of work to do

People ask me all the time how I can write so much about retirement plans. The answer is that I worked for my college newspaper called the Statesman. When you have an empty 16 page newspaper and about 12 hours to write, you have to be quick on your feet. The motto of the Stony Brook Statesman was “Let Each Become Aware”.

Let each become aware to me is not only the motto of my school paper, it’s my belief that through information eventually will come knowledge. I have always been a proponent of 401(k) fee disclosure for plan sponsors and participants because plan sponsors and participants should become aware.

While information can become knowledge, it can only become knowledge if it is spread and taught to those who should know. A recent study by Sharebuilder shows that retirement plan providers have long way to go in educating plan sponsors about the fees they charge.

45% of the plan sponsors in the study thought 4% was a reasonable fee to pay for a 401(k) plan. The average all-in 401(k) fees paid by plans with less than $1 million in assets is between 0.99 percent and 1.83 percent.

In addition, while a large majority of providers provided the required disclosure to plan sponsors, only 50 percent of the companies in the study recalled receiving fee disclosures.

When New York State became the first state to require seat belts for drivers in 1984, compliance was low. Eventually, all new drivers had to wear them in order to pass the road test for a license, so any driver taking drivers education after 1984 only started driving while wearing seat belts. Over time, compliance grew from 12% in 1994 to almost 90% in 2010. That is how I see plan sponsors understanding fee disclosure, it will take time and plenty of education.

I still can’t get over that 45% of plan sponsors interviewed thought 4% was a reasonable administrative cost for 401(k) plans. 4%? We have some work to do.

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