Until now, many plan participants have been unsure of how much it costs to participate in their retirement plans or what value they receive in exchange for fees. Due to Department of Labor requirements, this is all changed as of August 30. Retirement plan fees must be consistently disclosed to all eligible employees, participants and beneficiaries subject to ERISA. This positive movement will help plan participants have a more active role in their retirement savings.
Despite this regulation, many plan sponsors and benefits administrators do not fully understand fee disclosure and the repercussions it will have on plan participants. The fees can be complex, and communicating them can be overwhelming to participants. Armed with the right information, fee disclosure is a great opportunity to help engage and educate participants. New information and communication may spark renewed interest in retirement plans and can yield greater appreciation for the benefit and ultimately, greater satisfaction with the employer - and plan adviser.
What participants see
The new disclosure requirements require plan providers and sponsors to give participants additional information about their plan and associated fees in several locations and formats. These include annual disclosure statements, comparative charts of plan investments, glossary of terms, websites and quarterly participant statements.
In general, these fees may cover expenses related to the plan, including professional investment management, customer service, retirement education and administration and recordkeeping. While it may be tempting for participants to head to the lowest-cost provider once the fees are laid out, not all plans are the same. Sponsors are well-served to understand the value behind the products and services, and subsequently communicate the value to their employees. There are five points for benefits administrators to focus on when it comes to retirement plan fees.
1) Demonstrate commitment. Plan sponsors must support participants in their efforts to understand the fees themselves and the overall value of their plan. A commitment to participant education and open communication is essential as employers remain a valuable "partner" in their employees' path to a sound retirement.
2) Communicate. By now, most administrators have communicated the information about fee disclosure to their participants. As a result of proactive efforts, many participants will know what to expect in the coming months. Moving forward, sponsors should continue to comply with the regulations and provide materials that explain fees in a comprehensive, understandable way. By fostering a forum of open communication, sponsors will continue to build trust with employees, helping to restore plan confidence.
3) Personalize support. A communications program is not one-size-fits-all. Providing employees with dedicated resources will allow them to gain a better understanding of their retirement plans and the fees they pay. Actively researching how plan participants want to receive information is critical, and reaching them on their terms could be the difference between plan satisfaction and dissatisfaction. Many providers offer knowledgeable customer service representatives who can help answer any questions about fee disclosure, and in some cases onsite retirement consultants are available to ensure participants are selecting investments appropriate for personal retirement goals.
4) Focus on value. Fees can influence participant investments, but are only part of the big picture. Sponsors should help participants understand that cost is not the only criteria when evaluating a retirement plan. Plan value is derived from different components, including the services received, which can include enrollment support, retirement calculators, customer call centers and more. A less expensive plan, although appealing, may provide a limited menu of participant services and support.
5) Partner and empower. Administrators who partner with employees to help provide context around how fees work, how they compare to other products and how they add to the value of the overall retirement plan will set themselves apart. The plan sponsor is responsible for evaluating all possible options in order to ensure the fees their employees pay are reasonable. And as a trusted partner, sponsors will empower participants to make informed decisions around their plan and to take action to reach better retirement outcomes.
The additional light being shed on plan participant fee disclosure allows plan administrators and employers to demonstrate the true value behind the retirement benefits they offer. Ultimately, the positive momentum behind fee disclosure will allow participants to realize the true potential of their DC plan and will help put them on a road to a more secure retirement.
Lincoln Financial Group's Pancoast is chief counsel for retirement plan services, and Melia is VP of product strategy, product and solutions management.
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