By Jane Smith
The Pension Rights Center has long warned consumers to be aware of the fees charged by 401(k) plans.
That message was reinforced by syndicated columnist Michelle Singletary in her article “Your 401(k) is pocketing fees on your investment. Many people don’t realize it.” Singletary told her readers “It’s important that you understand that the fees you’re being charged matter,” and that people who think there’s no cost to invest in these plans are wrong.
The article highlights a GAO study that found 40 percent of 401(k) plan participants don’t understand the fee information provided by their plan and 41 percent incorrectly believe they are not paying any 401(k) fees.
As Singletary states, “What’s important to grasp is that whatever you’re charged has an impact on your returns.” The higher the fee, the less you will have in your retirement account when you retire. Even a one percent difference in fees charged can significantly reduce your retirement account. She cites an example from the Labor Department showing that over a period of 35 years a $25,000 account balance with returns averaging 7 percent was reduced by 28 percent when fees were increased from 0.5 percent to 1.5 percent.
How do you find out about your 401(k) fees? The Labor Department requires 401(k) plans to disclose the fees they charge. However, fee disclosures can be presented in a way that is not transparent and that include unfamiliar terms, such as asset-based fees. GAO found that 45 percent of participants are not able to use the information given in disclosures to determine the costs of their investment fees. (GAO 21-357, Highlights.)
The Pension Rights Center has always been supportive of better and improved disclosures. But we also have an additional concern that wasn’t mentioned in Singletary’s article.
We are worried that many employers will adopt a new 2020 Department of Labor disclosure system that permits plans to place disclosures on the internet so that participants must search the plan’s website, or other websites, to find the information that is rightfully theirs. Under this system, all disclosures, including fee disclosures, may be compromised – or lost completely.
PRC has been fighting to repeal, or significantly reform, this new “notice-and-access” rule that will make it harder for people to see the disclosures to which they are entitled. The notice-and-access system is complicated. It requires an electronic device for access, such as a smartphone, to receive electronic messages from the plan by text or e-mail that will tell them where to search on the internet to find a disclosure. The new rule creates barriers that could put millions at risk of losing some or all of the benefits they earned during a lifetime of work – due to lack of internet access and skills and lack of paper documentation to later show their rights to benefits.
While there are other methods of disclosure available to employers, it is expected that many employers will choose the new “notice-and-access” system of delivery because they believe it will be cheaper and easier for them – while there is little evidence that it is of any benefit to most workers and retirees.
Workers and retirees are still largely in the dark about this rule and need to be informed. No longer will it just be a matter of understanding fee disclosures, it could be a matter of finding the disclosures in the first place. It is important to know that if your 401(k) plan or defined benefit plan uses a notice-and-access system for disclosures, you have a right to opt out and request that all disclosures be sent to you on paper. Additionally, you can request a paper copy of any disclosure that is sent to you by the notice-and-access system.
Fees are important and they are difficult enough to understand. Be sure to request that fee disclosures be delivered to you in a manner that you can easily receive, read, and save for comparisons at a later time.
The Pension Rights Center wants to ensure that people receive and understand their fee disclosures and other plan information. This is why we object to the new notice-and-access system of delivery.