According to the nonpartisan Government Accountability Office (GAO), the push for disclosing the fees associated with 401k plans over the past ten years is benefitting both participants and plan sponsors. Important work remains to be done, however, as the GAO also found that clearer, more readily understandable information is needed.
Exploring the Impact of DOL Regulations
Over a decade ago, the Department of Labor (DOL) issued fee disclosure regulations for 401(k) plans, and a recent study by the Government Accountability Office (the investigative, nonpartisan arm of Congress) has concluded that the regulations have had a positive impact, although there are lingering questions about the comprehensibility of communications:
- Plan Sponsor Benefits: Fee disclosures provided to plan sponsors have helped increase plan sponsors’ “awareness and ability to manage their plans,” in particular for smaller plans that would otherwise not have had access to fee information;
- Participant Benefits: Fee disclosures have given plan participants more knowledge of and involvement in their 401(k) plans—potentially giving people more confidence to contribute to the plan; and
- Legibility Concerns: Some stakeholders raised concerns about whether participants understand the information provided to them.
Regulations issued by the DOL in 2010 and 2012 aimed at protecting the millions of workers depending on employer sponsored retirement plans to produce the savings needed for successful retirement. Interestingly, though the fees associated with retirement plans have decreased since 2012, the GAO found that the majority of plan stakeholders did not attribute this progress with the regulations: “Instead, they cited the threat of litigation, innovations in technology and competition among service providers as leading factors in fee compression.” In addition to lower fees, increased investment options for retirement plan participants has been observed as another positive trend over the last decade: “the GAO noted that plan sponsors reported an average of 26 investment options in 2023, up from 21 in 2013.”
Inquiries from the GAO have steadily pointed to the need for greater attention to how fee disclosures and other key plan information is actually communicated to participants. For example, a 2021 evaluation “found that 40% of participants did not fully understand fee information, and 41% did not know they paid fees.” Toward greater comprehension, the GAO points out: “plan sponsors and service providers can modify their fee disclosures or provide education to increase participant financial literacy, according to these stakeholder groups.” Plan sponsors will also want to keep in mind that “The DOL provides free resources to assist plan sponsors and service providers in monitoring and implementing fee disclosures and transparency.”
In addition to achieving compliance related to properly informing participants about the plan, sponsors must remain mindful that allegations related to fees and investment options continue to result in costly and disruptive litigation proceedings involving businesses of all sizes around the country. Remember, timely response to participant inquiries is another essential communication responsibility of plan sponsors. As part of its Fiduciary Education Campaign, EBSA leaders underscore the importance of responding to participant questions, noting: “If you ignore them, they will reach out to us and we are then obligated to investigate. Once we are in, we can look further and deeper….”
Protection for Plan Sponsors
Even while fulfilling ERISA obligations and driving their businesses forward, it is a wise idea for plan sponsors to shield personal and business assets from the personal liability risks inherent to their fiduciary role. At Colonial Surety Company, a one-year, Fiduciary Liability Insurance policy, inclusive of 50k Cyber Liability Insurance, costs less than an hour of ERISA defense attorney fees in the event of an oversight. Our packages are specifically designed to help plan sponsors with:
- Comprehensive Protection: All our packages include Fiduciary Liability Insurance, ensuring your business and personal assets are shielded from the repercussions of fiduciary breaches. If you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000.
- Cyber Liability protection for the plan and business—including cyber breach response services, as advised by the DOL to prevent cyber incidents from spiraling into fiduciary breach allegations.
- Cost-Control: Our packages are available for 1, 2, and 3-year terms, providing flexibility and locked-in rates.
Protect yourself, your business and your plan for the go forward:
ERISA Bond+Fiduciary+Cyber Liability HERE
Providing customers with knowledgeable and friendly service since 1930, Colonial Surety Company is rated “A Excellent” by A.M. Best Company, U.S. Treasury listed and in business all across the country.