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Effects of Fee Disclosure on Participants

Speaking with plan sponsors and record keepers across the DC industry, one would conclude that the much-anticipated fee disclosure to participants was a non-event. Some likened it to the Y2K of the DC industry. The just-completed Boston Research Group annual national survey of 7,000 active DC participants looked into participants’ awareness and reaction to fee disclosure in great detail.

How Intensively Participants Read the Information

The 2013 DCP Participant Study found that only 43% recall receiving information in the past year about the fees they pay on their workplace savings plan account. Of those who recall receiving the information, 50% “read it carefully to get the details” while 44% “scanned it quickly to get the general information.” The remaining 6% “set it aside and barely read it at all” or “did not even look at it.” Projecting to the total population of DC participants (that is, 43% recalled receiving information and 50% read it carefully), only 22% of all participants read the materials carefully.

The record keepers getting the highest participant recall of the fee disclosure were NY Life (65%), AON/Hewitt (62%), American Funds (56%) and Nationwide (55%).

Behavioral Changes as a Result of the Fee Disclosure

A key question is if participants made changes or reacted in other ways as a result of fee disclosure. Looking at the total population of all participants, only 13% changed their investments “as a result of the fee disclosure.” Nine percent called their HR department to get more information or clarification, and 6% said they stopped contributing to the plan and moved their balances elsewhere. Lastly, 1% complained to their employer about the fees.

Specifically looking at those who “read the disclosure carefully to get the details,” 40% changed their investments “as a result of information.” The incidence of changing their investments among those who only scanned the information (19%) or set it aside (13%) was much lower, however.

Perceptions of Fees

It is important to keep in mind that not making a change to one’s investments does not imply the information was not valuable. That is, the participant could have simply concluded their money was invested optimally given their options.

When all participants were asked about their perception of fees, only 9% felt they were “very high” and 21% felt they were “a little high.” However, 37% said they were “about right” and 27% said they “have no idea.”

The disclosure’s impact on participants’ fee perceptions in general seemed to be fairly high. Comparing those who recalled versus those who did not recall receiving the fee disclosure, 16% versus 3%, respectively, felt the fees are “very high” and 27% versus 15%, respectively, felt they were “a little high.”

Perception of the DC Benefit

Lastly, the study looked into participants’ general perceptions of the DC benefit and its effect on how they view their employers. When asked how much they value their employer’s retirement savings plan, 42% said they “highly value” and 46% said they “value” their plan. Only about one out of 10 are indifferent the plan. Furthermore, 30% say their plan has a “very positive” effect on their perception of their employer, and 39% say it has a “somewhat positive” effect.

Conclusion

Overall, one can see from the data why record keepers and plan sponsors concluded that fee disclosure did not live up to the fears of widespread participant angst or dissatisfaction with their DC plan. Few participants complained or even went to their HR departments for clarification and/or more information. Given that investment changes are done silently on-line or away from the view of the sponsor with telephone reps, it may have seemed there was no reaction.

However, analysis of behaviors and attitudes reveals that there was a great deal happening as a result of fee disclosure. As mentioned above, a lack of change does not mean the information wasn’t useful. Given participants’ feelings about fees in general and the value they place on the DC benefit, it’s likely that the fee information was helpful to many but didn’t indicate wholesale change in account management. And just as importantly, it didn’t erode the perceived value of the benefit their employers are providing.

Warren Cormier is the president of Boston Research Group. He also serves as CEO of the National Association of Retirement Plan Participants.

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