Fee disclosures wasn’t going to change everything after Day 1

When Eliot Spitzer was campaigning for the Governor of New York, he was well known in his role as a tough as nails Attorney General. In his campaign ads for Governor, Spitzer claimed that on “Day 1, everything changes”.

Having been a follower of New York state politics, I knew that Spitzer was going to a flop because he was too arrogant. Anything who knows anything about what goes on in Albany knows that very little changes, especially in one day as Spitzer promised. Change takes time; it takes tweaking; it takes trial and error. Of course, Spitzer lasted about 14 months as Governor because of his penchant for his prostitutes.

I’m sure than when fee disclosure regulations for retirement plans were finally implemented last July, many people thought that also on Day 1, everything was going to change.  Fee disclosure is a game changer for the retirement plan industry, but it’s a change that will take time.

There needs to be tweaking as the Department of Labor (DOL) is noticing that most plan sponsors don’t understand the jargon of the disclosures.  The DOL is considering adding a guide requirement so that plan providers can explain the fees in the fee disclosures that were supposed to explain the fees. The plan providers who used to hide the expenses they were receiving are still getting away with it, by just disclosing their inflated fees.

Most of all, plan sponsors need to be trained over time to expect these fee disclosures and the need for them to benchmark their fees. Like the usage rate of seat belts in New York, it took over 20 years for 90% New York drivers to use seatbelts even thought it’s the law (rate of usage right before the law was 16%). It will take quite a but of time for plan sponsors to understand disclosures and what to do with them.

Fee disclosures will have a profound effect on the retirement plan industry; it will just take more than a Day to change everything.

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One Response to Fee disclosures wasn’t going to change everything after Day 1

  1. Alison Farrin says:

    About a month after the fee disclosures were sent, I casually asked as many professional colleagues (NOT clients of our firm) that I could, if they had received their fee disclosure notices and what did they think of them. These are all white collar, professional men and women, from middle management in large companies to top spots in small companies, to some younger thirty somethings working at mid size companies. The results: 80% threw the envelope away unopened, assuming more marketing junk from their 401(k) provider. About 15% had opened the envelope and upon seeing 20+ pages of stuff, set it aside for “later”. A few people said they glanced at it and knew it was something about fees. One person said they read through it, but it looked like it was the same information that came on their statement each quarter. So, from my admittedly not scientific straw poll, fee disclosure was a complete waste of time and energy.

    I’m not sure what the DOL expected from this exercise. Unless you are the CFO and you have some pull with the Trustee, Plan Sponsor or investment committee, what would you do even if you read your fee disclosure, saw you were paying 3% in fees and were outraged? The only option open to the rank and file participant is to stop investing in their 401(k)!!!! Probably not the solution the DOL had in mind, but short of creating a grassroots campaign to reform a plan at some company and since we can’t even get people to work on their own retirement planning, that will happen when pigs fly, I can’t see the point in telling participants anything.

    Plan sponsors are different. They should know what they are paying and what they are getting for those payments. It is still too complicated for them – when we can get it on one sheet of paper, double spaced in bold face 14 point type, then we’ll be getting somewhere. Until then, all we have accomplished is keeping the post office in business a little bit longer.

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