New 401(k) Expense Reports Greeted with Yawns
New and far-reaching government rules require that 401(k) plans send out new reports by the end of this month to tens of millions of employees and other plan participants. The new reports require the plans to lay out details about expenses, fees, and other charges. While some 401(k)s have done this for years, the new rules require a standardized and detailed report that has been praised by consumer groups as badly needed and long overdue.
[See How to Use New 401(k) Fee Reports.]
In making their arguments, supporters of the new reports drew upon extensive consumer research showing that 401(k) plan investors do not understand the fees they pay, and most mistakenly believe their plans are free. In fact, 401(k) plans can charge considerable fees, especially for management and investment expenses of the mutual funds that are the core offerings of most 401(k)s. In extreme cases, high-fee plans invisibly drain substantial sums from investors' retirement nest eggs over time.
Details of the new reports were hammered out in seemingly endless discussions overseen by the U.S. Labor Department. Finally, however, their final form was adopted and the clock ticked forward. The future of consumer disclosure has arrived.
If you have a 401(k) plan, you definitely should read your report and spend some time to make sure you understand it. Fidelity Investments has developed a template of what its reports contain.
The only problem with the new reports, alas, is that all those tens of millions of 401(k) participants may not notice or care about them. People have been numbed by years of impenetrable employer communications. How will they know these reports are any different? And while these initial reports are tailored to each participant's 401(k) plan, they are not based on a person's precise investment choices in their plan. That means there is a fair amount of work required to personalize the information in the reports.
Also, some documents are being sent out in printed form, but the widest access to them is expected to be on employer plan websites. It's not clear how many people know their reports are available or have bothered to look for them. Consumers can always request printed reports but again, they have to know to ask.
[See Target-Date Funds Now Look Like Other Mutuals.]
While August 30 is the deadline for plan participants to receive the new reports, many plans have worked with their recordkeepers (Fidelity, T. Rowe Price, and Vanguard are the biggest) to send them out during the past several months.
As explained by Krista D'Aloia, a vice president and associate general counsel at Fidelity, spreading the reports over several months avoided big bottlenecks in printing and distribution work. Fidelity also expected a steady and manageable flow of consumer questions, she says in an interview, and added call-center employees to prepare.
Fidelity accomplished its objectives. Between April and mid-August, the company distributed roughly 17 million disclosure forms to its 401(k) participants. And during this extensive communications process, D'Aloia says, its expanded call-center staff has received a grand total of about 1,200 calls.
[See Can Index Funds Fix Your 401(k) Fee Problem?]
D'Aloia adds that most of those 1,200 calls had nothing to do with the disclosures in the report. Despite an explicit description in the document of why it was being provided to them, most questions dealt with why the notice was being provided and whether recipients were supposed to do anything with it.
"What we have experienced," she says, "is that customers have not been reaching out to us." Searching for an historical analogy, she says the response perhaps is analogous to the computer industry's preparations at the turn of the millennium for the dreaded "Y2K" bug.
