Despite the industry’s efforts to make 401(k) plans more transparent, accessible and low cost, a recent national survey by ShareBuilder 401k found that on average, small business owners who read fee disclosure statements still consider three percent a reasonable price to pay. Three percent is three times ShareBuilder 401k’s one percent benchmark.
Meanwhile, the survey found that 62 percent of small business owners think fee disclosures are clearer now than they were in 2012 – the first year the Department of Labor mandated retirement plan providers disclose all administrative and investment fees. A majority (70 percent) of small business owners who review their fee disclosures feel prompted to comparison shop. Twenty-nine percent even said they plan to look for a new retirement plan provider.
“While it’s encouraging to see that plan sponsors find the new disclosures easier to understand – and feel compelled to take action – there remains a lack of awareness regarding what is a reasonable price to pay,” said Stuart Robertson, president of ShareBuilder 401k. “Three percent is at least three times what plan participants should pay for an employer-sponsored retirement plan. It is essential to educate owners and employees on the low-fee options available to all investors.”
The survey found that
86 percent of small business owners are willing to spend more on their plan in return for increased support for the plan and for their employees. This includes access to investment advisers (37 percent) and employee guidance tools and materials (35 percent).
“We continue to advocate that no plan charge employees more than one percent in fees and investment expenses. The more knowledgeable owners and employees are about fees and their impact on savings, the closer they’ll be to attaining financial freedom in retirement,” Robertson continued. “Over the course of a 30- or 40-year career, the difference between one or two percent in fees can translate into to hundreds of thousands of dollars in lost retirement savings.”