401(k) Fees: Your Employees Don't Know!
In prior posts I have set out why I think it is essential that 401(k) plan sponsors pay more attention to fees being paid to service providers and why I think that the next great wave of fiduciary breach litigation will involve failure of plan sponsors to control plan costs. In response to a prior post, someone told me that they were not worried because their employees understood 401(k) fees. Well, I think you should still worry.
The TransAmerica Center for Retirement Studies published a fee study on June 19, 2009, that surveyed 3,466 employees and 596 employers, asking them questions about concerns regarding 401(k) fee disclosures. What I found most interesting about the results is this: 92% of employers thought they had a clear understanding of fees and 73% believed that their employees have a similar understanding. Yet only 29% of employees said they had a clear understanding, with 48% saying they were "unaware" and 23% saying they were not sure. Taken on its face, that's roughly 71% of a plan population that does not profess to understanding fees.
Similar surveys in the past have also concluded that the majority of plan participants do not understand plan administration, do not feel plan limitations are adequately communicated and are unaware of plan features like vesting requirements and annual contribution limits. At the same time, plan sponsors almost uniformly assert that their plan participants are well informed. Plan sponsors cannot force participants to educate themselves about plan terms. But they can certainly make sure terms (and fees) are well communicated and information is presented in plain, easy to understand language for those participants who do want to learn.
Communication to participants is almost always a key consideration when looking at ERISA litigation. Good plan sponsors (which is to say the ones who seem to avoid lawsuits) routinely provide information to participants so they understand the commitment to appropriate plan administration. So embrace that fiduciary duty and communicate. It's a great way to keep participants happy and might help avoid lawsuits.
