Phones don't ring off hook as DC plan fee disclosure notices hit

After years of regulatory wrangling, defined contribution industry professionals are getting little response — either favorable or unfavorable — from plan participants to the Labor Department's fee-disclosure rules that took effect Aug. 30.

“There hasn't been any reaction because people don't look” at documents, said Toni Brown, director of U.S. client consulting and head of U.S. defined contribution for Mercer Investment Consulting in San Francisco.

She was referring to the requirement that plan sponsors initially send a menu of investment fees and other plan fees to participants.

“I think the disclosures were too complicated,” Ms. Brown said, adding she's not surprised by the muted response.

“The message was too complex,” said Ira Finn, benefits consultant for Career Education Corp., Schaumburg, Ill. His firm sent out fee-disclosure notices to 14,000 participants in his company's $200 million 401(k) plan, but no one responded with questions. “There's just too much information. I think employees just saw this as a required notice,” Mr. Finn said.

At a minimum, the DOL regulations require plan sponsors to initially provide a list of fees associated with investment options, as well as fees for plan features such as loans and self-directed brokerage accounts. Subsequent quarterly statements will show the actual dollar costs to participants.

“There has been no response” from the 98,000 participants in the $4.93 billion 401(k) plan for salaried workers at United Parcel Service of America Inc., Atlanta, said Dan Dismukes, corporate retirement department manager for the company that has provided comprehensive fee information since 2003.

Fee-disclosure notices were a “non-event” for clients of Plan Sponsor Advisors, Chicago, said Jennifer Flodin, co-founder and chief operating officer. “The documents are very much prospectus-like, so they look like there's nothing new, although we have seen some that are more in laymen's language,” she said.

“I've heard from record keepers that they ramped up hiring at call centers, but there was not much response,” Ms. Flodin said.

Fidelity Investments, Boston, sent 16.2 million participant fee-disclosure notices on behalf of its plan sponsor clients between April and August, receiving only 1,300 calls, said Krista D'Aloia, vice president and associate general counsel.

Although Fidelity had added several dozen people to its call centers, company officials weren't surprised “because no action was required on the part of the participants,” Ms. D'Aloia said. “For many participants, this wasn't new information,” because Fidelity had provided much of the same fee information previously.

Vanguard Group Inc., Malvern, Pa., got a “non-reaction” from the 3 million-plus participants it serves because Vanguard has been disclosing fees via its clients to participants for years, said spokeswoman Linda Wolohan.

Participant response was “minimal” from the more than 3.3 million participants covered by Principal Financial Group Inc., Des Moines, Iowa, said Joni Tibbetts, vice president of retirement investor services. “This isn't new information because we already had been disclosing fees.”

The lack of participants' comments “did not surprise me with respect to my clients,” said Ian Kopelman, a partner in Chicago with law firm DLA Piper. Mr. Kopelman is chair of the firm's employee benefits and executive compensation practice group as well chair of the firm's qualified plan committee.

“We have a very sophisticated, educated employee base,” he said of his firm's own 401(k) plan, which has more than $600 million in assets and more than 2,000 participants. “We got no calls — not even for congratulations.”

Mr. Kopelman also is counsel to the Plan Sponsor Council of America, Chicago. At a recent meeting of members of PSCA's legal and legislative committee, “I asked the question (about participants' response to fee disclosure),” he said. “Their experience was the same as mine.”

Participants aren't asking questions because they “are deluged with information and it's not easy for them to assimilate it,” Mr. Kopelman said. “Too much is sent out too often.”

At M.A Mortenson Co., Minneapolis, Annette Grabow, manager of retirement benefits, said she received about a dozen calls from participants in her company's $180 million 401(k) plan.

“The team members who contacted me found the (disclosure) notice a little confusing — basically too much information in print,” she said. “But all of them understood everything fine once I explained it to them. No one was upset or suspicious. The notice itself was really a non-event here.”

Ms. Grabow attributed the paucity of comments to her company having provided financial education long before the initial fee disclosure notices were sent.

And in her recent visits to offices and plants for her annual financial education and plan communication campaign, Ms. Grabow includes fees in her presentation. “It's short and simple and there have been few questions,” she said of the three sites she has visited so far.

Some DC industry officials say the volume of comments might increase once the first quarterly fee-disclosure statements have been distributed.

These statements “will be more explicit — participants will see actual dollars — so there's some expectation that people will react more,” said Tobi Davis, manager of retirement plans for Hillshire Brands Co., Downers Grove, Ill. “But it's hard to tell.”

The quarterly statement in November for her company's $600 million 401(k) plan will include a detailed fee chart as well as fees for loans and hardship withdrawals. Hillshire's initial fee-disclosure statement, however, generated “only a handful of calls” from 17,000 participants, Ms. Davis said. “It's not a surprise. I didn't think people would read it.” n

A fee-disclosure fact sheet is offered on the Labor Department website at www.dol.gov/ebsa/ newsroom/fsparticipantfeerule.html.