College 'Education'

Those kids many parents are sending off to college for the first time this month – are part of a diverse, internet-savvy and privacy-free group of nearly two million.

Researchers say that this Class of 2012 has been assured many times that being the children of baby boomers has made this past year the most competitive for those (almost) willing to sell their souls for admission to the school of their dreams.

For the past eleven years, Beloit College in Beloit, Wisconsin has released an annual report, cataloguing the conditions in which their newly matriculating students were raised and humorously (if painfully) comparing them to those of previous generations. Initially meant to be a “witty way of saying, “watch your references,’ authors Tom McBride and Ron Nief created a “globally reported and utilized guide to the intelligent but unprepared adolescent consciousness.’ For some, their web site’s promise that the list was “not deliberately designed to make readers feel really old!’ might feel like a warning, but for many the list will provide an excuse for nostalgia and a new way to connect with their almost-grown-up children who will soon be heading off in search of higher education.

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This year’s college freshmen will overflow from their campuses, some moved to apartments and even school-rented hotel rooms, and many packed in with three people in a dorm room optimistically designed for two. They are already acquainted with their future roommates, having found each other on Facebook to discuss necessities – who should bring the fridge? – and look for clues to see how well they might get along, taking advantage of easy access to religious and political leanings, favorite books and movies, musical tastes and even personality quirks.

They have always carried bottled water – moving from cancer-scary Nalgenes to recyclable “green’ bottles made of annoyingly thin plastic – and take email, cell phones and Wi-Fi for granted. Even though the so-called “Mindset List’ highlights how different life is now from how it was eighteen years ago, it links the past and present and, surprisingly enough, reminds us that the more things change, the more they stay the same.

– Sara Kelly

The Way Things Have Always Been for the Class of 2012: A Sampling

  • They have always been looking for Carmen Sandiego.
  • GPS satellite navigation systems have always been available.
  • Shampoo and conditioner have always been available in the same bottle.
  • WWW has never stood for World Wide Wrestling.
  • The Warsaw Pact is as hazy for them as the League of Nations was for their parents.
  • Clarence Thomas has always sat on the Supreme Court.
  • Have always known that “All I Ever Really Needed to Know I Learned in Kindergarten.’
  • IBM has never made typewriters.

Benefits of Fee Disclosure Outweigh Costs

A new research paper from the Rotman International Centre for Pension Management suggests that the cost of greater fee disclosure born by defined contribution retirement plan participants would be at most small and there could be a reduction in costs paid due to participants switching to lower cost funds.

In their report, authors John Turner and Hazel Witte, cite several situations and studies that indicate costs to participants of greater fee disclosure would not be an issue, including a 2004 study by the U.S. Government Accountability Office (GAO) which examined the increase in fees that would occur with improved disclosure. The GAO study found that while the total cost to the U.S. mutual fund industry of providing specific dollar fee disclosures might be significant, the cost on a per-investor basis could make such disclosure feasible.

The GAO reported that improving disclosure would add $1.07 in ongoing costs to the $184 in operating expense fees the average account is charged annually. If passed on to participants, the costs of improved disclosure would add six-tenths of 1% to the operating fees charged each account. Thus, the GAO study suggests that improved disclosure would not noticeably raise costs.

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In addition, the Rotman researchers suggested the cost to participants of increased fee disclosure might be reduced below the increased costs to mutual funds for two reasons: with greater information about fees, participants may tend to choose lower fee providers; and greater competition based on participants being better informed and seeking lower fee providers may force fund providers to lower their fees in an attempt to retain and attract customers.

More important than the costs of greater fee disclosure is the benefit to DC plan participants. The report authors contend that when consumers do not know the costs of different options, they tend to over-consume expensive items and under-consume inexpensive ones. “With better fee disclosure, pension participants would be better able to decide whether those fees were justified or whether they would prefer to use lower-fee providers. Better fee disclosure is a necessary condition for participants to make better financial decisions,” the report said.

The excess fees paid by participants when they are uninformed and choose more expensive options result in lower retirement savings.

Disclosure Proposal

Noting that the primary goal of fee disclosure is to enable participants to make informed choices on a timely basis, the report authors offered a proposal for fee disclosure.

They propose:

  • The fee disclosure should contain four items plus a total. The items, all measured as the amount paid by the participant, are: 1) investment and administrative expenses as contained in the expense ratio, 2) transactions costs of buying and selling, 3) other expenses charged to all participants, which may include plan administrative expenses, and 4) fees charged due to actions taken by the participant (loans, special advisory services received).
  • Other expenses should be itemized if they include fees for activities within a particular set of activities that are not generally engaged in or they include flat fees. This could include fees for receiving a loan from the plan, or fees for splitting the assets at divorce. Fees for a specific non-recurring service should be disclosed before the participant commits to that service.
  • Fees should be disclosed in dollars per quarter on quarterly statements and in dollars per year on annual statements. In addition, they should be disclosed as a percent of assets. When it is not feasible to determine the exact amounts paid by the participant, approximate amounts should be disclosed, indicating that they are approximate amounts, and indicating the range in which the actual amount would likely fall.
  • Some educational information should be provided indicating the effect of higher fees on account balances at retirement. This could be provided through a standard disclosure with a worked example.
  • Participants should have the option to request more detailed information about fees that are received by employers sponsoring plans.
  • The disclosure should be provided to the participant before making the first investment in an asset. At that time, it would be provided as a standard worked example. It should also be provided every time the participant receives an account balance and transactions statement, in which case it should be provided using the information relevant to the participant’s own account.
  • Fees should be disclosed for an investment of a standard amount, such as $1,000, in the prospectus within the first few pages. It also should be disclosed on quarterly and annual account statements. The disclosure should occur on the first page of the quarterly and annual disclosure document and the disclosure should be in standard font size.
  • The information should be disclosed in plain English. The disclosure should clearly state that these are expenses borne by the participant as charged against the participant’s account.

Based on their proposal for fee disclosure, the authors included a prototype fee disclosure in their report.

The full report is available here.

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