Posted by: 0 in vantageblog, retirement planning, retirement plan, recordkeeper, Prudent expert, plan sponsor, plan expenses, investment education, Fee disclosure, 401(k) plan on
Mar 1, 2010
So my last blog on Fee Disclosure left us with some open issues. Namely we still need to help participants understand two things:
- The impact of the identified costs on their future retirement savings, and
- How their choices within the Plan can change those costs and outcomes.
So how could we do that on participant statements along with the simple disclosure I outlined previously?
Remember, realistically, we have to boil it down to a standardized formula/format that will work for ALL participants of ALL plans. In other words, we’ll never be able to (on an individual basis) take into account an individual’s preferences, risk tolerance, outside savings, etc., as those things are unique to the individual and couldn’t easily be “modeled” on a participant statement disclosure. (Note: there are plenty of great products available out there that an individual can use to accomplish that level of accuracy in modeling. Even those that can be tied in with your plan’s recordkeeper – Financial Engines comes to mind.)
Posted by: 0 in vantageblog, retirement planning, retirement plan, Prudent expert, plan sponsor, plan expenses, investment education, fiduciary responsibility, Fee disclosure, 401(k) plan on
Feb 5, 2010
As I mentioned in my post last week, we (the industry) need to come up with a disclosure that truly (and simply) explains who is getting paid what, for what, how, and by whom, along with a participant-specific dollar figure of costs incurred – then explains how the participant can affect their own plan costs based on their choices. This is no small task.
There is no doubt that fees within 401(k) Plans are confusing at best ... deceptive at worst.
The shift in the benefits industry over the last several decades from pension plans to 401(k) plans and traditional indemnity medical plans to consumer-driven health plans has ushered in an era of “personal responsibility”. In “the old days” employers took responsibility for all of the decision making around benefits for their employees. The traditional pension plan said to the employee: “We’re handling it. Your pension will provide your retirement income, so you don’t have to worry about it. We’re making all the decisions for you and taking all of the risk.” The 401(k) plan, on the other hand, tells the employee (whether they understand it or not): “We’ll give you the vehicle, but you have to make all the decisions and take all the risks. If done right, it will provide for your retirement income; but success depends on the quality of the decisions YOU make. We’re not responsible for those decisions anymore.”
This has been a good shift for employers, resulting in less liability and less responsibility for the outcomes. But too often, I don’t think the employees “got the memo” about their personal responsibility. It’s like raising a child, and when they reach working age, we dump them into the world without the skills needed to succeed. You wouldn’t hire a chemical operator at a chemical plant with no experience, and just point them toward the reactor and say “there it is, now go run it.” You hire experience, or … you train them! You provide training internally on key internal processes that help your business succeed.
In the same way, if we want our employees to be responsible for their own retirement savings, we need to provide appropriate training for our employees to succeed at saving for retirement. This training should go way beyond just handing them an enrollment kit, a pile of fund prospectuses, and instructions for logging onto the plan’s website. But sadly that is often the extent of “training” provided to employees. If we truly want our employees to be responsible for their own retirement savings choices, and we want them to be successful at it, we will need to provide not only information about the plan itself, but also some training on what it all means and what it will take to reach their goals.
