Tom Schwab, the owner of a 15-employee mortgage company in Seattle, is used to dealing with complex financial forms. But when he opened a mailing detailing the costs of his company’s 401(k) plan, he was perplexed.
“It was like getting a blood test,” Schwab says. “There’s a lot of data but no range to tell you what is normal.”
His inability to make sense of the paperwork was all the more confusing because this was one of the new “plain-English” fee disclosures, mandated by the Labor Department, that started rolling out a few months ago.
After much careful scrutiny, Schwab determined he was paying too much to ING for managing his plan. But “if I wasn’t in finance I probably wouldn’t have read it,” he says.
The new forms disclose information that was often unavailable before. Plan providers now are required to list and explain all the costs of a plan — including critical and previously difficult-to-find fees that mutual-fund companies collect from plan participants and route to providers.
But rather than give employers a transparent view of their 401(k) costs, many critics say, Wall Street seems intent on drowning them in paperwork and fine print. A recent study of 500 small-business owners, commissioned by Seattle 401(k) provider ShareBuilder, found that 80% of those who remembered seeing the documents still had questions after reading them.
In response, a cottage industry of consultants is springing up to help translate “plain English” into actual English.
It wasn’t supposed to work that way, according to benefits lawyer Marcia Wagner. “A reasonably intelligent person should be able to read it and understand it,” she says. “Otherwise it would defeat the purpose of the regulation.”
The stakes couldn’t be much higher. With pension plans disappearing, the majority of Americans will rely on defined contribution plans for their retirements. And retirement-plan fees — up to $60 billion per annum, by some estimates — eat into workers’ savings, in some cases effectively adding years to the time they must punch the clock.
Many experts remain optimistic that the Labor Department’s effort will help wring unnecessary expense from the system.
Individual savers also are getting notices under the new rules, including disclosures likely to begin appearing in November that will spell out the specific dollar amounts individual investors paid to maintain their plans.
WSJ Retirement Weekly Editor Robert Powell points out that investors who held steady during the economic downturn since 2008 were rewarded. He also offers advice for investors paying close attention to retirement savings.
The Department of Labor says employers that are confused by the disclosures should contact plan providers, and then notify the department if that doesn’t help. ING defends its approach to the new rules as a “comprehensive, natural evolution of what we’ve already been doing” and adds that other reactions to its disclosures have been favorable.
For business owners that remain befuddled by their provider’s disclosures, financial advisers and consultants are waiting to assist, often for a price.
ShareBuilder offers to analyze employers’ forms within 48 hours. The consultation is free, though it is also a marketing tool for ShareBuilder’s own plans. Other services are available from Alameda, Calif.-based Retirement Desk and Boston-based Dalbar.
Dalbar rates any disclosure’s usefulness on a 100-point scale; it says it charges anywhere from $375 to $15,000 to vet a plan’s costs. “We’ve seen some that are crystal clear,” says Chief Executive Louis Harvey. “The worst are just a long list of things and legal language nobody could use.”