So far, the Department of Labor’s new rule requiring 401(k) plan sponsors to distribute fee-disclosure statements to plan participants hasn’t had much impact, experts say. Sponsors had until August 30 to comply with ERISA section 404(a)(5) by revealing the amount of fees that are being charged to participants’ accounts, as a percentage of assets. Disclosures by early adopters have produced a “collective yawn” from employees, says Nancy Gerrie, employee benefits partner at McDermott Will & Emery.
“The disclosures are very long, and participants don’t understand what they are meant to disclose,” says Gerrie. Some are simply throwing away the statements, she says.
But plan participants may not be so apathetic after November 14, when they start receiving their statements for the previous quarter. That’s when they will find out how much in administrative fees is being deducted from their accounts in terms of dollars and cents.
While the August deadline may have raised more-technical questions about the nature of investment-fund fees and benchmark allocations, questions after the November deadline will be blunter, and harder to answer, predicts Gerrie. For example, she says, plan sponsors will have to provide explanations to employees who thought participation in their plans was free, or answers for why the administrative fees are so high.
Gerrie advises plan sponsors to designate fully trained account representatives to answer any questions participants might have. Smaller businesses lacking the resources of larger companies should contact their investment-fund vendors. “They should definitely bring in their plan administrative company,” she says. “[The plan administrator is] producing the disclosures and should know the plan well enough to brief business owners on the questions they should expect and the answers to give.”
Meanwhile, the new fee disclosures are having an effect on the way 401(k) plans are marketed. “We are seeing plans revert back toward having per capita–based fees, which were popular in the 1980s and early ’90s,” says Gerrie, before plans shifted to asset-based fees because of revenue-sharing agreements in the 401(k) recordkeeping industry. This trend will allow sponsors to shop for and compare 401(k)s in an “apples to apples” way, says Gerrie.