More than six months after 401(k) participants were given explicit information about the fees they pay, has their knowledge changed much? According to research from LIMRA, the answer is yes and no.
Before the rules existed, 50% of participants didn’t know what they paid — a number that remained the same after the rules went into effect. However, the percentage who thought they paid nothing dropped from 38% to 22%, and the number who knew they paid fees more than doubled, from 12% to 28%.
The biggest surprise: 42% of participants who said they know what they’re paying in 401(k) fees thought their fees were more than 10%, and more than 25% believed they paid 25% or more in fees. The same number, 70%, thought that fees were reasonable both before and after the disclosure.
Concerns about calls centers being bombarded by participants after receiving their fee disclosure statements were the 401(k) industry’s version of Y2K. But the LIMRA research is alarming nonetheless because it illustrates the low level of sophistication of most participants, and how much help they need — perhaps from a combination of good plan design and face-to-face seminars and advice, as demonstrated in the 2012 report from Bank of America/Merrill Lynch we wrote about recently.
