Half of defined contribution participants do not know how much they pay in plan annual fees and expenses, a figure unchanged by the implementation of fee disclosure regulations in 2012, new research shows.
LIMRA, Windsor, Conn., discloses this finding in a summary of results from a survey of defined contribution plan participants. LIMRA conducted the poll before and after plan participants received information about their plans’ fees and expenses to determine how effective the disclosure statements were and how participants would react.
Prior to receiving disclosure notices, 50 percent of participants said they did not know how much they paid in fees and expenses; the same portion did not know subsequent to receiving the notices, the study reveals.
“The disclosure notices — or the discussion of them — did seem to improve the knowledge of those who believed they didn’t pay any fees or expenses,” says Alison Salka, corporate vice president and director of LIMRA Retirement Research. “There are nearly 75 million workers who participate in defined contribution plans in the United States.
“Our study found that 22 percent of participants believed they didn’t pay fees and expenses after receiving disclosure notices, compared with the 38 percent in our first survey, prior to disclosures going out.”
The study finds that many participants overestimate the amount of fees and expenses they pay in their DC plans. Forty-two percent of participants believe they pay 10 percent or more — with over a quarter of participants believing they paid 25 percent or more in fees and expenses.
On average, DC plan fees and expenses range between one and two percent, depending on the size of the plan and the participants’ allocation choices. LIMRA’s study finds that less than one in three participants who thought they knew how much they paid estimated their fees and expenses to be under two percent.
The survey finds that 7 in 10 participants who said they knew they paid fees and expenses believed those fees and expenses to be reasonable, similar to what LIMRA found in its survey prior to the disclosure notices being sent.