While many employers say fee disclosure in the 401(k) market has improved, they remain uneasy about what they don't know about their defined contribution plans. Outwardly, employers are comfortable with transparency levels, but many plan sponsors feel they just don't understand plan fees, says a new Chatham Partners study.
Seventy-seven percent of the 416 employers surveyed feel current DC plan disclosure levels are sufficient but only 58% of respondents feel confident about their understanding of their plan's overall costs, despite realizing the importance of understanding these costs (79%).
Employers doubt their ability to decipher fee models which leads to concern about potential legal action, higher plan expenses and participants selecting suboptimal investments. This anxiety makes employers less satisfied with fees and makes it more likely employers will shop around for another DC provider, according to the survey.
"Plan sponsors are starting to realize what they don't know about fees. The collective epiphany is going to play into the hands of retirement plan providers at the leading edge of full disclosure," noted Andrew McCollum, Managing Director at Chatham Partners, a Waltham, Mass.-based market research company.
Retirement plan providers and advisers cannot assume that clients are happy with the level of disclosure being provided simply because their efforts are compliant with current regulations. Chatham's research shows employers want easy to understand descriptions of fee components, clear communications about their fee-related fiduciary responsibilities and reliable benchmarking of fees versus similar plans, among other fee-related information.
