About half of 401(k) participants still do not know what they are paying in fees and expenses for their plans, according to LIMRA Retirement Research.
The study found that this was about the same percentage that existed before the new Department of Labor (DOL) fee disclosure regulations went into effect in the spring 2012. A report in Plan Sponsor said 22% of participants surveyed believed they did not pay any fees and expenses after receiving disclosure notices, compared with 38% prior to the implementation of the new DOL regulations.
“The study found many participants overestimated the amount of fees and expenses they pay in their DC plans. Forty-two percent of participants believe they pay 10% or more—with more than one-quarter of participants believing they pay 25% or more in fees and expenses,” according to Plan Sponsor.
LIMRA Research found that the average DC plan has fees and expenses which range between 1% and 2%, depending on the size of the plan, extra services and the investment choices available to plan participants. LIMRA also found that participants believed their fees were “reasonable”, even if they could not exactly define what they were paying for.
A Missed Opportunity for 401(k) Plan Sponsors
Since the study found many participants still were not clear about their fees and expenses, 401(k) plan sponsors have a few opportunities to better inform their employees about their plans.
First, they can demonstrate what specific benefits participants are receiving for the amount they are being charged.
Second, plan sponsors should educate employees about the impact of fees and expenses on their portfolios over the long term. DOL studies have found that high fees can reduce a portfolio by up to 20% over a few decades. That is money which can be retained by better cost management by both sponsors and their employees.
