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2 responses to “Will DOL’s New Mutual Fund Fee Disclosures Mislead 401k Investors?”

  1. BenefitJack

    Chris, thank you so much for this article.

    I can confirm, without question, that the chart you showed in Part III would overwhelm most plan participants. So, for example, my plan once had 47 different investment choices, requiring perhaps 20 different benchmarks. While we had a simple chart showing performance against benchmarks on two pages (quarter, year-to-date, annual, 3 year and five year), it did not include all of the fee disclosure information but showed net net against the net net of the benchmarks. Adding the fee information for both the funds and the benchmarks would have pushed that to maybe 3 or 4 pages – even in summary form.

    Today, the plan is down to 13 investment choices, but also 10 target maturity models and a directed brokerage. So, while I think plans like mine will be able to keep the fee exhibit to one or two pages, no one will use this document to make investment decisions … because it so intensely focuses on fees, out of context and to the exclusion of other important investment info. Many will want to offer a separate chart for fees, a completely separate document, versus placing it in a larger context relative to returns, for compliance purposes – because merging in what some would argue is pertinent investment information might give cause to claims that the final document was designed to divert attention from fees.

    So, I expect many plan sponsors will continue the investment performance information they already have, or if they are not providing benchmarks, adding benchmarks, and simply adding a new, separate exhibit to comply with fee disclosure requirements. So, more work, more cost, to manage your plan.

    What bothers me is that the DOL projects these regulations will have a 10 year cost (2012 – 2021) of $14.9B (range of $7.2B – $29.9B). In the preamble, the DOL estimates the regs generate a net savings of $12.3B! because the “… regulation’s disclosure requirements are expected to reduce participants’ time otherwise used for searching for fee and other investment information. The Department expects the regulation to produce substantial additional benefits, in the form of improved investment decisions, but the Department was not able to quantify this effect. …”

    My experience is that participants tend not to read required disclosures (SPD, SAR, Annual Funding Notice, etc.). For example, my phone number was on over two hundred thousand required disclosures/notices of various forms each year at my former employer and maybe I averaged 30 phone calls a year from former employees who had forgotten about their benefit plan participation; or those who called to let me know that they no longer worked at my company. So, I’m not so sure there is all that much participant searching for data on fees – at least not $27B worth! And, how many actually read the notice, and then take time to analyze and discuss the information, and then take action in reliance on that data? In fact, way too many participants don’t read much more than the bottom line at the end of each calendar quarter’s statement – let alone analyze investment performance. While it is a study almost 10 years old, an ICI study confirmed, of those surveyed, that almost 40% had not changed their initial investment and contribution elections.

    Finally, while the fee notice is required before participation begins, and annually thereafter, many investment option fees change from time to time. Perhaps I missed it, but, I don’t think the regs require notification to participants when fees change, nor the publication of historical (as well as cumulative) fee information.

    Any bets on the percentage, 0% – 100%, of the cost of this new disclosure that makes its way into an increase in fees ultimately paid by participants?

    Bottom line, I am concerned the constant push for more and more and more required disclosure is perceived by Congress and the regulators as an effective solution to EVERY problem.

  2. Will DOL’s New Mutual Fund Fee Disclosures Mislead 401k Investors? | The Rosenbaum Law Firm P.C. Blog

    […] My comments in the FiduciaryNews.com article by Chris Carosa can be found here. […]

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