Data & Research September 12, 2012

Fee Disclosures Cause Confusion

Eighty-three percent of small-business owners are still unclear about 401(k) fee notices and next steps, according to a survey.
Reported by

The Department of Labor (DOL) fee disclosure rules put into effect this summer were intended to make it easier for plan sponsors and participants to understand their fees. However, the ShareBuilder 401k national survey shows many sponsors remain confused and feel unprepared to answer questions from employees.

Some keys findings include:

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

 

  • The reports go unnoticed by many. The majority (92%) of small-business owners claim to be aware of the new regulation requiring providers to supply fee information, but only 60% recall receiving this document.

  • The new reports create more confusion. Of those who did recall receiving the documents, the average time spent reviewing was 16 minutes, and 83% were left with questions about what action to take. Sixty-eight percent said they are not fully prepared to answer employee questions about fees.

  • Small-business owners are not ready to switch plans. More than one-third (37%) of respondents hired or plan to hire a consultant to help review options, and 34% have gathered or plan to gather benchmarking data. Few business owners are using this as an opportunity to negotiate their plan with their provider (33%) or to search for a new provider (26%).

  • Many are uninformed about what is a fair 401(k) fee percentage. Fees are usually based on a percentage of total plan assets; on average, small-business owners said they think 4% is a fair rate, which is much higher than the average percentage.

The ShareBuilder 401k survey was conducted by Wakefield Research among 500 small-business owners and decisionmakers offering 401(k) plans at companies with 100 employees or less, from August 17 and 27, using an email invitation and online survey.

 

Products September 12, 2012

Staying On Track: Age-Based Savings Guidelines

Employees should aim to save at least eight times their ending salary to meet retirement income needs, Fidelity Investments suggests.
Reported by

The new set of savings guidelines, designed to help workers evaluate whether they are on-track to meet retirement income needs, shows that an average worker may replace 85% of his pre-retirement income by saving eight times his ending salary. To reach this figure by age 67, Fidelity advises workers have about one times their salary saved at age 35, three times at 45 and five times at 55.

“The two factors that have the greatest impact on retirement savings over time are starting early and saving consistently,” said James M. MacDonald, president of workplace investing at Fidelity.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

The 8X savings guideline is based on a hypothetical worker saving in a workplace retirement plan, such as a 401(k), beginning at age 25, working and saving continuously until 67, and living until 92. The ending goal would include savings in all qualified retirement accounts.

The guidelines also assume that the employee will make continuous annual salary contributions to a workplace plan beginning at 6% and escalating 1% per year until 12%, plus an ongoing 3% annual employer contribution; a lifetime hypothetical annual portfolio growth rate of 5.5%; Social Security payments are factored into the replacement ratio of 85%; and the employee’s income grows by 1.5% per year over general inflation with no breaks in employment or savings.

 

«