The failure of fee disclosure regulations

It has been more than a year since the Department of Labor issued fee disclosure regulations.

What’s changed since July 2012? Undoubtedly this mandate initiated necessary dialogue within the retirement industry. Fee disclosure was intended to keep providers honest, grant participants access to what they are paying, and promote a need for transparency when folks start asking what they are paying for their plans.

But let me ask you this: Have plan participants started asking the hard questions of their plan providers? Do they even know to ask? And if they have inquired about fees, what kind of answers did they receive?

The LIMRA Secure Retirement Institute conducted a number of consumer-based surveys to gauge how much plan participants know about their retirement plan fees. These surveys began in July 2012, before the initial fee disclosure, and the results showed 50% of retirement plan participants were unaware of the amount they paid in fees and expenses.

LIMRA released a follow-up to the survey at the end of 2013, reporting that after the fee transparency was enacted, “… half of participants do not currently know how much they pay in fees and expenses. Further, nearly 4 in 10 still believe that they do not pay any fees or expenses.”

To sum it up, nothing has changed since fee disclosure was implemented.

Is this surprising? No. Disappointing? Yes! While the intentions for these regulations were to benefit plan participants, the results, based on the LIMRA survey, indicate there was much left to be desired. People had no idea what to look for or what the fees even meant.

Who’s to blame for fee disclosure’s shortcomings? The retirement industry? The Department of Labor? Employers? Employees?

Let’s not play the blame game. Rather, let’s focus on why plan participants are still confused. Everyone listed above is an active participant in this process and should embrace increased transparency. The fee disclosure regulations were a giant step for the retirement industry. What can we do to further these changes and solve the looming retirement crisis?

1. Make retirement savings user-friendly.

Here’s the ugly truth: As an industry, we are guilty of not making the future user-friendly. We are burdensome and jargon-heavy.  We’re not accessible.

When someone is actively trying to manage an intangible notion, their future, and sees only complex industry terms and vague data, what is going to compel them to ask the hard questions and cut through the red tape to find out where their retirement dreams stand?

Let’s strip out the jargon and dismiss the notion that a comfortable retirement is not in the cards for a majority of Americans. We need to encourage everyone involved to think positively and focus on the end-game: a comfortable, happy retirement for every plan participant.

2. Engage more with employees.

Our attention has habitually been on the employer. They purchase the plan, are the trustee, and traditionally determine each facet of each provision. Then, the delegated plan sponsor is required to do the administrative duties during enrollment, while sending their providers data during each pay period, yet they generally don’t know the first thing about selling a retirement plan to their employees.

We are perpetually focused on the advisers and sponsors, but not employee engagement. This is the next step in our industry: educate, guide and be proactive to ensure employee engagement is a standard feature of all plans. It is our responsibility to educate people on what to ask, what to look for and how to be in control of their own futures.

3. Increase transparency.

Fee disclosure is a massive improvement toward creating transparency in our industry, but we need to inform the masses on what to look for. Once we as plan providers focus on increased transparency and providing plans that aren’t laden with hidden fees, America’s savers will not have to deal with a complex and intimidating industry that is tepid about their future, but rather an accessible one that is cheering them on while they build up their nest egg.

We need to refocus on redefining our audience and from there, pare down and simplify what we are saying to them and how we are communicating with them. This movement will take us back to our initial mission – helping people save for retirement – with positive results. Let’s make this the new trend in saving.

Chad Parks is founder and president of The Online 401(k).