Employee Fiduciary LLC, a 401(k) recordkeeping and third-party administration (TPA) provider, is asking the Department of Labor (DOL) for enhanced clarity and transparency on how 401(k) fees are presented to participants.
In a comment letter to the DOL, Employee Fiduciary’s President and CEO Eric Droblyen requested for improvements to annual fee disclosures that those in participant-directed 401(k) plans receive before their enrollment date and annually after. This would “increase the transparency of hidden fees, make total fees easier to calculate and compare, and better warn participants about the cumulative effect of fees,” Droblyen noted.
The letter references a 2021 study by the U.S. Government Accountability Office (GAO), which found that nearly 40% of 401(k) plan participants do not fully understand the fee information presented in today’s disclosures.
“We firmly believe in 401(k) fee transparency and the imperative need for participants to clearly understand the implications of these fees. This letter is our commitment to championing a change that benefits participants nationwide,” he said in a statement.
Among Employee Fiduciary’s recommendations include:
- Standardization of plan-related information: Employee Fiduciary suggests introducing a model chart for administrative and individual expenses to help participants total and benchmark their fees.
“The mix of 401(k) administrative and individual expenses charged by plan providers today can vary dramatically. However, the types of expenses they charge are few. Administrative expenses tend to be flat (based on the number of plan participants) or asset-based (based on a percentage of plan assets), while individual expenses usually relate to distributions and loans. Given the small number of expense types, we recommend the DOL develop a model for plan-related information to help participants total and benchmark their fees,” wrote the provider.
- Transparency of “hidden” fees: Requiring the breakout of indirect administration fees from fund operating expenses to provide a clearer understanding of true costs.
- Highlighting the cumulative effect of fees: Shifting the focus from annual fees to a comprehensive view of how these fees, compounded over time, can impact participants’ retirement savings.
“In our experience, most 401(k) participants have no idea how dramatically the cumulative effect of fees can impact their retirement savings over time, wrote Employee Fiduciary. “We think two changes to the annual fee disclosure can help. First, move the cumulative effect of fees explanation from the comparative chart to the opening. Second, add a graphic illustration to the cumulative effect of fees.”
The DOL had previously requested public feedback in August regarding fee disclosure rules, after sections 340 and 341 of SECURE 2.0 call on the Department to revise reporting and disclosure requirements for 401(k) plans in an effort to “enhance participants understanding of defined contribution plan fees and expenses, including the cumulative effect of such fees on retirement savings over time.”
The DOL is accepting written comments from the public until October 10.
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
I’m not sure where the GAO did their study. But I’d like to know where those 60% of participants who “fully understand the fees being laid out in the fee disclosure” are. I’ve worked with thousands of participants over the years. And there is no way that 60% fully understand the fees. I doubt that 10% even look at the fee disclosure. If it is delivered electronically, a very small percentage might take a look. If it is delivered on paper, it goes straight into the trash. I’ll always push for more transparency, but simplicity needs to happen first. There are ways we can make those more transparent and simpler at the same time.