Communicating retirement plan value to participants in the wake of fee disclosure
After much anticipation, the date has arrived: As of August 30, 2012, the Department of Labor requires fees to be consistently disclosed to all eligible employees, participants and beneficiaries of retirement plans subject to the Employee Retirement Income Security Act. This positive movement has precipitated an increase in consistency and transparency of communication to plan participants.
Currently, many plan participants are not sure how much their retirement plan costs or what value they receive in exchange for fees. In fact, some participants have been unaware that they are paying fees. The new fee disclosure rules will prompt some participants to focus on retirement plan services and fees for the first time.
As a result of the new disclosure requirements, participants will see the additional information about their retirement plan fees in numerous places, including annual disclosures of plan features/services and fees that may be charged, comparative charts of plan investments, a glossary of terms, websites and quarterly fee information on participant statements.
Hopefully by now, most plan participants have been made aware of these upcoming disclosures through proactive communication efforts by plan sponsors and service providers. Many will know what to expect. But for some, these fees will leave a few unanswered questions regarding the value of their retirement plan.
Helping Participants See the Big Picture
In our view, plan sponsors should not see fee disclosure as a negative development that requires defensive measures. Rather, we think plan sponsors are now faced with a unique opportunity to command participants’ attention, as they proactively communicate the positive impact of fee disclosure and the value of the retirement plan benefits that they offer and help participants fully understand what the fees are paying for.
In these difficult economic times, with unprecedented budget deficits and the future of government programs such as Social Security and Medicare seeming uncertain, employer-sponsored retirement plans are becoming ever more important to Americans’ retirement security. Now is an opportune time to remind participants of this and show them how valuable this benefit is.
Fees are nothing new. Rather, plans and their providers are now showing participants fees that already exist in a more transparent and consistent way. Although the plan fees can and should influence investment and retirement planning decisions, they’re only one part of a much bigger picture. A comprehensive retirement plan is comprised of much more than the numbers seen on a statement or chart.
Rather than focusing on the fees or reacting to participant questions about fees, sponsors are well-served to engage in a proactive and comprehensive communication strategy that not only anticipates participant concerns, but that emphasizes and explains the value of the benefits and services being provided. Knowledge is key to effective retirement planning. Participants cannot make good decisions with fee information alone.
So, what are the main points to remember surrounding plan participant fees?
Cheaper isn’t always better