Delivering fee disclosure notices to both plan sponsors and plan participants has helped some plan sponsors to lower their costs, but the various fee disclosures are still difficult for many to understand. With such a national focus on fees, some plan sponsors have taken the opportunity to review and rethink how they handle plan fees.
With fund companies creating multiple retirement share classes with various revenue sharing options, plan sponsors struggle to find the right balance. So what is the right answer? Plan sponsors as fiduciaries are held to make sure their plan expenses are fair and reasonable. While ERISA allows plan sponsors to pay reasonable expenses from plan assets, it is the balance that drives many decisions that plan sponsors need to make.
The easiest way to eliminate revenue sharing issues and put the power of disclosure to work is to use funds with zero revenue sharing. While the concept is easier for plan sponsors to understand plan level fees, the balancing act comes in the form of educating participants.
While this is making fees clearer to understand, the issue comes when employers do not want to pay for all recordkeeping expenses. This is where the balancing act comes into play with plan sponsors, as now they explicitly need to start charging participants either on a percentage of assets or a flat fee.
Employees traditionally have not seen fees handled this way and it creates the need for plan sponsors to be in front of the education curve with plan participants and build education around how fees were handled in the past versus how they will be handled going forward. Will this engage employees to spend time reading and understanding the fee disclosure notices plan sponsors send them?
Little effect
While I believe a few plan participants will have questions when they get their statements regarding fees that are explicit, it will not have much of an effect on participants reading their fee disclosure notices. Participants apathy toward this or retirement planning in general is a trend that has been going on for some time and is not changing any time soon.
The industry and regulators need to make fee disclosures easier to understand and come up with a way that is not so daunting for the average participant. It will not be easy with all the regulations and the need to put disclosures on top of disclosures, but, clearly, the easiest way to discuss fee disclosures or retirement in general is to be direct and up front. This may mean the industry needs to rethink education and processes to reengage generations of upcoming retirees.
Transparency may be something that is in the forefront today, but it will take advisers educating plan sponsors and participants on the various options available to them. In the end, it is the plan fiduciaries responsibility to make sure fees are fair and reasonable. How they pay and disclose those fees is less transparent.
Ludwig, ChFC, AIF, CRPS, is an LPL Financial adviser with LHD Retirement. He can be reached at
