According to the 2011 Deloitte 401(k) Benchmarking Survey, one-third of plan sponsors are unfamiliar with the new fee disclosure rules. When participants receive their third-quarter statements reflecting this disclosure information, plan sponsors may have difficulty explaining the numbers.
Although many participants will not read their statements, at least one employee from each company will, Bob Kaplan, vice president, national training consultant at ING Investment Management said during an ING retirement perspectives webcast, “Five Things Advisors Must Remember About Participant Fee Disclosure.” The webcast outlined several action points for advisers to help sponsors in the aftermath of the participant fee disclosure deadline:
Manage Sponsor Expectations
Kaplan’s first tip is to manage plan sponsor expectations. Plan sponsors and advisers should work together to ensure participants do not dwell on fees and, as a result, forget why they are saving in the first place, he said.
In addition to preparing participants for disclosure information, advisers should evaluate the services they are providing to sponsors and participants. “When the service is there, fees are not really an issue,” Kaplan said.
Address Participant Confusion
According to Kaplan, a “staggering” number of participants do not know they pay fees. Callan’s 2012 Defined Contribution Trends Survey found that participant confusion is the chief concern among plan sponsors regarding 404(a)(5).
“These fees may not be new, but they are being shown in a different format,” Kaplan said.
To clear up confusion, advisers should offer to meet with participants and educate them on fees. Now is the time for advisers to prospect plan sponsors who are not receiving participant disclosure help from their current advisers, he added.
Explain Fees and Services
Advisers should remind sponsors that cheaper plans are not necessarily the solution because less expensive may equal less service. During this time in particular, advisers should help clients understand the value they are bringing and why the fees are justified, Kaplan said.
During each annual review, advisers should present to sponsors a checklist of services they performed. “That will be a strong defensive move,” Kaplan noted, should a new adviser prospect the client.
Help Sponsor Piece it Together
Sponsors may need a little hand-holding from the adviser, who can provide them with benchmarking tools.
The decisions the sponsor makes – for example, what adviser or provider to work with – must be documented. “Let the plan sponsors know that a very important part of this is documentation, documentation, documentation,” Kaplan said.
Ensure Brokerage Windows Are Not Broken
Kaplan cautioned that plan sponsors should be aware that a plan without designated investment alternatives (DIAs) could be suspicious to the Department of Labor (DOL).
“The problem is not with having brokerage windows,” Kaplan said. “The problem is not providing enough information about them.”
Brokerage windows must be listed on all participants’ statements, regardless of the small number who use them. In its revised Field Assistance Bulletin (FAB) No. 2012-02R, the DOL said that “… in the case of a 401(k) or other individual account plan covered under the regulation, a plan fiduciary’s failure to designate investment alternatives, for example, to avoid investment disclosures under the regulation, raises questions under ERISA section 404(a)’s general statutory fiduciary duties of prudence and loyalty” (see “DOL Issues Clarification to Participant Fee Disclosure Guidance”).