Finding that 45% of retirement plan participants do not understand the information they receive about fees, the Government Office of Accountability has given the Department of Labor recommendations for strengthening fee disclosure regulations.
What Will the Department of Labor Decide?
The Department of Labor (DOL) has not yet responded to the extensive and detailed recommendations made by the Government Accountability Office (GAO) to improve participant understanding of the fees associated with retirement accounts. As Plan Sponsor reports:
The GAO found that 45% of participants are not able to use the information given in disclosures to determine the cost of their investment fee, and 41% of participants incorrectly believe that they do not pay any 401(k) plan fees.
The GAO determined that the DOL could take additional steps to help DC plan participants improve their understanding and use of fee information, and it made a number of recommendations for doing so.
The agency notes that the DOL regulations require disclosures to present fee information in a format that helps participants compare investment options; however, disclosures are not required to include certain information, such as fee benchmarks and ticker information (i.e., unique identifying symbols used for many popular types of investments).
“Fee benchmarks can help participants to assess an investment option’s value, not only relative to other in-plan options but to options outside the plan,” the GAO says in its report. “Ticker information can help participants identify many plan investments online to evaluate and compare them to options outside the plan. By requiring such information in disclosures, the DOL could help participants better understand and compare their plan fees when making investment choices that affect their retirement security.”
What’s Next?
While the DOL’s response to GAO recommendations is pending, pension plan experts remind plan sponsors of their fiduciary obligation to ensure the retirement plan is beneficial to employees. If participants are unaware of the fees they are paying, how can plan sponsors—or participants—be sure the plan is indeed a benefit? Bottom line: flawed and fuzzy fee structures are a fiduciary liability for plan sponsors. The spurt of active lawsuits focused on failures to appropriately monitor and control plan fees makes this an especially critical time for plan sponsors to protect both retirement funds and personal assets. No matter how diligent we are in our duties, we can face claims of actual or alleged breaches of our fiduciary obligations—and be held personally accountable.
Across the country, plan sponsors are obtaining protection via Colonial Surety’s fiduciary liability insurance. It covers the business—and the plan sponsor—against claims of alleged or actual breaches of duty in connection with the employee retirement plan. Colonial’s Multi-Year Packages provide the greatest convenience, value and protection, and include: the ERISA bond required by the Department of Labor, Cyber Liability Insurance—and Fiduciary Liability Insurance.
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Why Is the Government So Concerned?
There are over 87 million people participating in 401k plans across the country! Although the Department of Labor has long had regulations requiring comprehensive fee disclosures, the intelligibility of the information received by participants is questionable. Accordingly, the GAO was asked to “examine how well participants can understand and use the fee disclosures.”
No one enjoys wading through layers of confusing information, right? What’s worse? Finding out you have been overcharged. No wonder plan fees have become a hot button in ERISA litigation. Although the focus on fees has generally been driving fees down, the retirement plan fees in small businesses remain higher than average. It’s even been estimated that 75% of small business plans are paying hidden fees.
It’s important for plan sponsors to be continuously vigilant in selecting and monitoring all plan services, understanding the fees and ensuring that participants do too. It’s always useful to refresh your understanding of fiduciary responsibilities–or even take training. As diligently as you go about your duties, however, know that while you can mitigate fiduciary liability risks, you can never fully eliminate them. Under ERISA law, any individual involved in the management of a retirement plan can be held personally liable. Let Colonial Surety help you manage the inherent risks with our affordable and comprehensive package options. Remember, an ERISA bond protects the assets of the retirement plan from theft; Fiduciary Liability Insurance protects you and your assets from personal liability; and, Cyber Liability Insurance safeguards your company and plan from covered losses and expenses in the event of a cyber breach.
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