Maybe there’s no sense arguing over disclosure rules: two-thirds of Americans spend less than five minutes going over their retirement plan disclosure documents, and 20% don’t read them at all, a study released Monday by LIMRA found.
“We as an industry have concerns about helping clients,” Alison Salka, corporate vice president for LIMRA Retirement Research, told AdvisorOne on Wednesday. “Participants aren’t always as engaged as we want them to be.”
Unsurprisingly, the most often cited reason for skimming or ignoring disclosure documents is that they’re simply too long (57%). Over half of respondents said they were too technical or complicated and 43% said they were hard to understand. However, 40% said they don’t read their disclosure documents because they wouldn’t change anything as a result.
Salka noted that the main reason participants are looking at their statements is to see their balance; they’re not looking for important disclosures. “When they see fine print or language that’ complicated, they’re intimidated or just skim it for important information,” she said.
Surprisingly, adults 35 and younger are more likely to read these documents than older workers. They’re also more likely to go to their employer for information than older workers.
That may seem counterintuitive considering older workers are the ones who stand to lose the most as fees eat into their retirement savings. “Younger workers are less likely to have a DB plan, or they have less knowledge about investing,” she said. Younger workers may not be as near to retirement, but they’re still under pressure to save because they won’t have defined benefit plans to rely on.
"Not surprising, almost 9 out of 10 participants either did not know the fees they paid or did not think they paid any fees for their employer-sponsored retirement plans,” Salka said in a statement. “As participants are provided more detailed information about their retirement plans' structure and fees, we are interested to see how they respond.”
Salka added that Monday’s survey is part of a series on consumer understanding and actions.
LIMRA also found that just 12% of respondents said they could estimate how much they paid their retirement plan. Of those, 75% felt fees and expenses were reasonable, even though over half said they were paying more than 2%. LIMRA referred to a 2011 Investment Company Institute study that found the median “all-in” fee (which includes all investment fees and administrative or recordkeeping fees, except those specific to a participant’s activity) for a defined contribution plan was just 0.78%.
Although most participants appear to be happy with the fees they pay on their plan, nearly a quarter said they would move their assets into lower-cost funds if they found out the fees they were paying were higher than average. Over 20% said they would speak to their employer about trying to lower fees and 12% said they would go straight to the fund provider to do the same. Sixteen percent of respondents said they wouldn’t do anything about it if they found out their fees were higher than average, but most respondents (31%) didn’t know what they would do.