August 30 — the deadline for plan sponsors to provide employees with plain-English descriptions of the 401(k) plan fees they’re paying — is right around the corner.
And rather than simply passing along the fee disclosure info to workers, savvy employers should be able to use this compliance challenge as an opportunity to bolster employees’ morale.
Expanding on 401(k) plan fees
Liz Davidson, the founder of Financial Finesse, offers a number of best practices HR and Benefits pros can use to get the most out of providing employees with their 401(k) fee disclosure statements. Here are some examples:
1. Assume they know nothing. New research from AARP found that 71% of employees said they didn’t pay any 401(k) plan fees when, of course, they did. That means the fee statements are going to be a real eye-opener for the majority of workers. So, regardless of how clear the info you present is, you may need to do more than simply hand out fee-disclosure statements to employees.
Consider holding a meeting (or series of meetings) where HR and benefits go over the statements with staff and answer any questions they may have about 401(k) plan fees.
2. Educate staff on fundamental fee differences. When it comes to their 401(k) plans, the vast majority of the fees employees pay go toward investment fees. However, because these fees are deducted right from investment returns, workers are often in the dark that they’re paying these fees in the first place. And there are some major differences in high and low fees for this category.
Example: Managed accounts, which employees often get placed in, carry much higher fees than index funds (or passively managed funds).
3. Give them an apples-to-apples comparison. Without a reference point, the 401(k) fees your employees pay will always seem excessive. That’s why it’s so important for employers to show just how your plan compares to other plans in your industry. If the fees you pay are much lower than the industry average, stress how this is proof the company is taking its fiduciary duty very seriously. If your fees are a bit higher than the average, you may want to use the plan’s performance as a selling point. The key is to show employees how their 401(k) stacks up to the average plan.
