Many 401(k) participants have been unaware that service provider fees come out of their retirement plans. The new participant transparency disclosure regulation aims to make that reality abundantly clear.
“People have been selling these plans and saying they’re free. That isn’t correct,” says Sara Richman, vice president-product management, Great-West Retirement Services.
Now, notes Celia Rafalko, managing principal-CEO, Piedmont Independent Fiduciaries, “participants are being faced with employers saying, ‘You know that 401(k) plan you have? It isn’t free.’”
Also see main article: “Transparency.”
But here’s the question: Are participants and those eligible to join plans even reading the transparency disclosures they’ve received since last August?
Merrill Lynch mailed about 3 million and had only 300-400 phone calls. “They probably were a little overwhelmed with information and didn’t focus a lot of attention on it,” says Kevin Crain, head of institutional retirement and benefits services, Bank of America-Merrill Lynch. “More work needs to be done evolving the disclosure to make people understand and react.”
Great-West, in an assist to sponsors, sent out 350,000 disclosures. “The fact that there were very few calls tells me they’re not reading the information,” Richman says. “That’s too bad. A lot of effort and cost went into this.”
But she can empathize: “If I get a packet of information in the mail that looks like a legal document, I’m probably not going to hunker down in front of TV with a glass of wine and read what turns out to be my participant disclosure!”
Crain notes: “The fear was that [people] would get scared by the disclosure and not participate in plans. But that has not come to fruition. They are engaging in plans more than ever before.”
Upcoming this May: A Dalbar study on participant disclosures. — JWR