They’re disclosed in a way few people read, even after the institution of 408(b)(2) regs that were supposed to make it easier. Now the Pew Charitable Trusts wants to know if workers really understand retirement plan fees.
The public policy organization released a new report, aptly titled “Many Workers Have Limited Understanding of Retirement Plan Fees,” that examines whether plan participants comprehend what happens in their retirement accounts.
“Even small fees can significantly reduce an employee’s overall savings at retirement,” John Scott, retirement savings project director, notes. “For example, a person earning $60,000 a year who invests in high-fee funds rather than low-fee funds could see a difference of nearly $170,000 in their total savings over 40 years.”
Among the other key (and somewhat depressing) findings:
- Nearly 7 in 10 respondents with retirement plans said they were at least somewhat familiar with their plan’s fees. Still, 31 percent were not at all familiar with the fees.
- Roughly two-thirds had not read any investment fee disclosure in the previous year. Even among those who said they were very familiar with their fees, 33 percent hadn’t read any fee disclosures in the past year.
- Of the third who had read a fee disclosure, nearly 7 in 10 said they found the information understandable. Still, only 25 percent of all respondents said they had read and understood a disclosure about retirement account fees.
- Roughly 4 in 5 workers said it would be at least somewhat useful to have additional information about investment fees.
- Hispanics, women, younger workers, respondents with lower levels of education, and low-income workers were among the least likely to be familiar with the fees in their plans. On average, workers in these groups are less likely than other workers to be financially literate or to have experience with the financial system.
- Workers who had engaged in retirement planning at some point were more likely than those who had not to be familiar with their plan fees. Those who were more confident about investing were more likely to say that it would be helpful to have more information about fees.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
