What I Learned from Reading My Retirement Plan Fee Disclosure
I have a confession to make: While I have written extensively on annual participant fee disclosures for retirement plans, I have never read the participant fee disclosure for my own plan!
It’s a little embarrassing, given that I work in the retirement plan industry, but to me, the idea of reading a DOL-mandated fee disclosure was the retirement plan participant equivalent of a trip to the dentist. So, into the shredder they went.
However, this year was different. I decided to read the entire fee disclosure to see if I could learn anything about my own retirement savings. And, to my surprise, it was not a terrible experience. While it was on the lengthy side (nine pages), it not only provided some valuable information, but also prompted me to take action with respect to my retirement plan.
Here are my observations:
- The standout of the disclosure was the net operating expenses of each plan investment. Because it was expressed in dollars per $1,000, it was easy to understand. I wish that the industry would stop using percentages/basis points, which are more difficult to comprehend, and make the dollar-denominated disclosure the standard whenever fund fees are disclosed.
- The disclosure failed to disclose the fees of the plan’s fixed account, listing them as N/A. As an advisor, I am aware that there are indeed fees for this type of account, however, the average participant may be under the impression from this disclosure that fixed/stable value funds are free, when they are not. I realize that these investments are not subject to the same legal standards for fee disclosure as mutual funds, but there should be some way to convey the cost.
- A nice bonus was that in addition to fees, fund performance was also disclosed. These performance figures prompted me to compare my actual account performance to the performance of individual funds, and led me to make a change in my investment allocation. Look at that! Reading the fee disclosure led me to take action in my account (hopefully, for the better) that I otherwise would not have.
- While I would have preferred there to be better disclosure of any fund revenue sharing and how it offset recordkeeping costs, for the average participant, this explanation would have amounted to gobbledygook, as well as lengthened the fee disclosure by several pages, so I will give my recordkeeper a pass on that one.
- Finally, I learned about some transactional fees in my retirement plan that I previously did not know about.
In sum, I learned quite a bit. I will now read my retirement plan fee disclosure each year, and I suggest that you do as well!
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.
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