Workers seem to be doing precisely what they would be expected to do with 20-page disclosure documents: Tossing them in the circular file
Employees are tossing their retirement plan fee disclosures in the circular file, keeping themselves in the dark on how much their 401(k)s cost.
Ever since Aug. 30, 2012, per the Labor Department, retirement plans have been required to distribute fee disclosure documents to 401(k) participants that depict the costs and services they get from record keepers and fund managers.
Employers, in turn, are also supposed to get disclosures from service providers, including financial advisers, also spelling out the fees and services, as well as whether the service provider is acting as a fiduciary.
According to advisers and recent data from Limra, a research and marketing organization, workers seem to be doing precisely what they would be expected to do with 20-page disclosure documents: Blowing them off.
Data from the Limra Secure Retirement Institute shows that nearly 40% of working consumers currently contributing to a retirement plan believe they don't pay any expenses in their 401(k). The organization posed that question to 741 individuals who are contributing to a defined-contribution plan.
Limra also found that only one in three participants spends more than five minutes reading the disclosures, and only 12% were able to estimate just how much they pay in fees.
“The documentation has been absolutely asinine: There's just too much of it,” said George Fraser, managing director and financial consultant at Retirement Benefits Group, which is affiliated with LPL Financial. “People don't understand it; it's like a credit card disclosure.”
Gerald Wernette, principal and director at Rehmann Retirement Builders, agreed. “I have a very small minority of the audience that is trying to wrap its arms around [the disclosure],” he said. “Even in our own plan — and we're a big firm — with our own fee disclosures, I only heard from one person.”
