Fee Disclosure Discourse

Sponsored by: MFS Investment Management

About 15 years ago, the DOL mandated recordkeepers provide detailed fee disclosure reports to plan sponsors, and that plan sponsors do the same for participants. The belief was that participants did not understand fees associated with investment options in the 401(k) plan and this mandate was intended to help participants make informed choices about investing their money. Those of us around for that remember what a big deal this was, and the efforts plan sponsors had to put into this. After everything was implemented, we then wanted to know if worked – did the (mostly well meaning) mandate have the intended effect? PSCA did a few snapshot surveys back then and though it was a bit early to tell, for the most part what began as a big ado ended in a bit of a shrug.

Fifteen years later fee disclosures have become commonplace, and the GAO recently asked us if we thought the disclosures had been effective in increasing participant understanding. This is a bit hard to measure directly, but we asked plan sponsors last week if it seems that participants read them and understand them, and do they think they’re generally helpful. We also asked their thoughts on the disclosures they receive from recordkeepers.

Unsurprisingly, most respondents stated that most participants don’t read them – three quarters – while six percent feel that participants read them and find them helpful, and 15 percent feel that they are confusing to participants. My guess is you would find variability in this by industry and plan size. Some plan sponsors feel that participants do need the information, but the mandated format is not useful and hard to interpret. Others noted the increased administrative effort for what appears to be very little effect.

On the other hand, half of respondents stated that they find the reports from their recordkeeper easy to read and understand and helpful, while thirty percent find them confusing and hard to interpret. This could be recordkeeper dependent, or it could be experience – a few commented that they were initially hard to decipher but over time you learn how and become familiar with them.  

Select comments follow.

• Although participants do not read them, they may find them helpful to provide to their financial advisor for a full review of fees. Prior to this change there were many hidden fees that providers have been forced to disclose and/or change their deceptive practices because of the new fee transparency. In that way, I believe they have been helpful.
• As a former recordkeeper and now plan sponsor, the participants don't read them and if they do they don't understand them.  As a plan sponsor, I glance at them to make sure the fees are reasonable.  The only people that seem to really care about them are the auditors who want to make sure they are being sent out.
• Associates do not review. There is a sense of disengagement - they "don't want to get involved" They want things to work, like Benefits, Payroll, but don't want to know the specifics.
• Because of the variation in types of fees, I believe the disclosure has some value, but plans make different choices about what their fee structure will be and that creates apples to oranges comparisons in fee disclosures.
• Employees either don't read them or they find them confusing.
• Few read them.  Fewer yet understand them.  Their advisors, if they have one, find it helpful.
• Generally provide important information - whether plan participants really pay attention to them or not is another question.
• My recordkeeper goes over all disclosures with me in detail!
• I do not feel that participants understand why we need to disclose them and by making distribution mandatory it causes a lot of calls and questions that do not change participant choices.
• I don't think our employees use them at all.
• I don't think the majority of people read them, but they are easy to read.
• I feel that fee disclosures are essential and helpful, yet the government mandated format is confusing for participants to understand.
• I feel that our fee disclosure "meets the requirements" and that's it. It lists some fees twice and lists a fee we don't actually have any longer even after repeated attempts at correction (not sure what's up with all this other than it's sloppy and folks are disinterested in doing more than what's required...). It doesn't fully explain anything in plain language.  And, you need more info to actually interpret the fees listed, ie you need to know to add individual investment fees to the separate % base recordkeeping and the % advisor's fee.
• I feel they are helpful but I never receive any comments or questions about them from our participants
• I feel they are helpful to the ones who review them.  The majority still don't review.
• I feel they may be helpful but most participants do not review them.
• I find participants don't care about the fees as much as we think they will.
• I think participants don't read anything that looks like a standard required notice. There are so many required notices out there meant to help participants, but they are overly long and complicated and only confuse participants who in turn just toss them.
• I think they are necessary but few look at them in detail.
• I understand them and find them somewhat helpful, but doubt our employees look at them.
• Investment managers can make this so much easier, simplifying the language and the length of the fee disclosures.
• It depends on the workforce & industry. for some, comprehension is above & beyond.
• Like many of such 'legalese' type documents, people likely take one look and either put it in the trash or delete it.
• Majority of employees elect one of the pre managed portfolios; so the fees are the fees.  While it may be interesting information, it doesn't necessarily help participants understand if the fees are higher or lower than their counterparts, if they even understand that there are counterparts. Participants expect their employer to handle this for them – in essence employees should feel like they hired a subject matter expert and shouldn't have to worry about.
• Most participants don’t read them, and those that do read them don't understand them.
• Most people don't read them & if they do, they misunderstand the info, thinking they're paying more than they actually are.
• Much of the required information that we provide gets overlooked and dismissed. Some of my employees may look at these disclosures, but most do not.
• No, it's like all the other information passed along, employees don't read them.
• Our employees are inundated with various required disclosures year round so they've gotten accustomed to just ignoring them.
• Personally, I look at the fees per fund when I am making decisions about where to invest my money.
• Plan Sponsors do need to read, review, and understand the fee disclosures from the recordkeeper, it's part of their fiduciary responsibility. However, most participants do not read or understand the fee disclosures and therefore has no impact. Most participants remain in the plan's TDF default.
• They add to the plan sponsor’s administrative burden with little upside for participants. The industry should adopt a uniform disclosure similar to the truth in lending disclosures.
• They are outdated when prepared because of IRS rules of when to distribute and the date the information is stale.
• They can be helpful but do typically require a certain level of knowledge for the participant to get the most out of it.
• They end up in the trash, unread.
• Unlikely since they don't read them.
• We think they do give participants better information than before