New U.S. Department of Labor required 401(k) fee disclosures haven’t given small-business owners a shot of confidence about explaining their retirement-plan offerings, according to a new survey. The rules, which the Department of Labor’s Employee Benefits Security Administration put into effect this summer, require plan administrators to provide participants and beneficiaries with plan-related information like […]
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New U.S. Department of Labor required 401(k) fee disclosures haven’t given small-business owners a shot of confidence about explaining their retirement-plan offerings, according to a new survey.
The rules, which the Department of Labor’s Employee Benefits Security Administration put into effect this summer, require plan administrators to provide participants and beneficiaries with plan-related information like administrative expenses and individual expenses. But most small-business owners who reviewed mandated fee-disclosure documents from 401(k) providers reported feeling confused, according to findings of a survey released Sept. 12 by a Seattle–based investing firm, ShareBuilder 401k.
A full 83 percent of small-business owners walked away from disclosure documents with questions about what their company should do, the survey found. And 68 percent did not feel fully prepared to answer employee questions about their plans.
“Part of the issue is it’s new,” says Stuart Robertson, president of ShareBuilder 401k, which is a subsidiary of McLean, Va.–based Capital One Financial Corp.’s ING Direct business. “The second is that they may not fully understand their company’s fee-disclosure document. We’ve seen them range from 8 pages to over 30 pages.”
Small businesses — defined in the ShareBuilder 401k survey as having 100 or fewer employees — often don’t have as many resources to dedicate to looking at retirement plans, Robertson points out. Without dedicated human-resources staffers like those found at larger companies, small-business owners are often left trying to examine 401(k) costs themselves, he says.
Yet the average time owners spent reviewing fee-disclosure documents was just 16 minutes, the survey said. Some business owners, 37 percent, indicated they had hired or planned to hire consultants to help them understand their 401(k) options. Another 34 percent had gathered or planned to collect benchmarking data to help them compare alternate retirement plans in which their company could enroll.
“There is no benchmarking data on [a required fee-disclosure document],” Robertson says. “I’m paying X percent. Is that a lot or a little? We want the employer to realize you can go to a cost comparison or talk to your current provider about what options are available to lower fees.”
Fees are normally based on a percentage of a plan’s assets. However, small-business owners don’t know what 401(k) fees are fair, according to the survey.
The average small-business owner who participated in the ShareBuilder 401k survey pegged 4 percent as a fair rate. That’s higher than the rate ShareBuilder 401k recommends, Robertson says. The company tries to keep employee fees at 1 percent or lower.
“While a few percent may not seem like a lot, over a career, it adds up to be hundreds of thousands of dollars in someone’s nest egg,” Robertson says.
Even so, few small-business owners seemed concerned with shopping for lower fees, the survey said. Only 33 percent reported using the new disclosure documents as a jumping-off point for negotiating about their plan with their current 401(k) provider. A mere 26 percent said they used the disclosures as a flashpoint sparking shopping for a new provider.
Nearly all small-business owners, 92 percent, were aware of the new fee-disclosure rules, the survey said. A lower portion, 60 percent, recalled actually receiving the documents, though.
Fees are an important aspect of a 401(k) plan for business owners to review, as are other features, Robertson says.
“They’re going to look at fund performance, they’re going to look at services,” he says. “It’s a good action for doing what’s best for them and their employees.”
The market-research firm Wakefield Research, which has offices in Washington, D.C. and New York City, conducted the national survey for ShareBuilder 401k. It polled 500 small-business owners online between Aug. 17 and Aug. 27. Survey results have a margin of error of plus or minus 4.4 percentage points.
Contact Seltzer at rseltzer@cnybj.com