The mandatory fee disclosures under 408(b)(2) and 404(a)(5) aimed to provide both plan sponsors and participants with transparency and communication regarding investment fees; services; compensation; and more.

But while the disclosures attempted to create a clarity among providers, plan sponsors and participants, it was met with confusion instead. When the Department of Labor (DOL) fee guide proposal issued for plan sponsors in 2014 called for shorter summaries to omit lengthy, 408(b)(2) rules, no simplified guide was issued for participants. If a plan sponsor found trouble scanning through lists brimming with services and fees, how did—and do—the participants react?

“I suspect that some plan participants use it as best as they can, and probably a lot [of participants] throw it away,” says Aron Szapiro, director of policy research at Morningstar. “Or they don’t look at it until there’s some decision point, and then they need a little extra help to contextualize it.” The issuance of the first fee disclosures to participants got less attention than anticipated.

While 2012 reports emphasized education and better communication between employers and workers to improve participant understanding of fees, a conversation with then Assistant Secretary of Labor Phyllis Borzi, with the DOL’s Employee Benefit Security Administration (EBSA), revealed service providers are not following the rule to the letter. According to Borzi, the agency did not intend for providers to offer a master list of services and fees and have plan sponsors figure out which services they are using and paying for. Also, she said, it doesn’t serve the purpose of the regulations if the plan sponsor doesn’t have to understand the fee information it is provided because providers take care of everything for 404(a)(5) participant fee disclosures.

Although education on fee disclosures may be essential at certain points, to Jim Sampson, director of retirement advisory services at Hilb Group Retirement Services, it’s identifying the overall value in a simplified manner—and focusing on that value instead of costs— that drives participants and investors to engage in their plans. Sampson urges plan sponsors and participants to focus on the real value associated with the plan.

“The sponsor decides where the money goes, who the service providers are, and the employee’s stuck with it for better or for worse,” he says. “The whole purpose of having this plan is so that employees can retire on time with enough money. There’s a whole bunch of ways to accomplish that, and fees are part of the puzzle, but it’s not the entire puzzle.”

Szapiro agrees. “They could provide educational material, but a lot of participants aren’t really going to make sense of this,” he says. “People want the simplicity of something that just sort of says, ‘yeah, this is good. This is also good. This is better,’ that can do a lot of that backend work for them.”

Sampson believes that while fee disclosures have benefited those aware of fee charges, not every participant has—or will—keep an eye of on these charges. “That’s what the plan’s fee disclosure has done, it’s opened the eyes to people who pay attention, he says. “Unfortunately, not everybody pays attention.”

NEXT: Proposed Actions and Tools to Help Participants

Will Hansen, senior VP of retirement and compensation policy at the ERISA Industry Committee (ERIC), based in Washington, D.C., believes transparency and awareness start with the engagement between a plan sponsor and participant, especially through financial wellness programs.

“If you engage with an individual at the very basic level of even basic budgeting types of exercises, hopefully you can build off of that foundation and get to the point where you then get a little into the weeds of explaining to a person; what’s the basis point (bp) and how does that basis point impact your long-term financial situation when it comes to your retirement,” he says.

He continues, “As long as employers continue to expand upon these financial wellness programs, hopefully that will engage more people to take notice of the fees that are associated with the retirement products.”

While a struggle in understanding disclosures may continue to be prevalent, current actions conducted by the ERIC hopes to diminish puzzlement in fee breakdowns, according to Hansen.

“The ERISA Advisory Council, which is an arm of the DOL, is looking at disclosures, that’s one of the projects it’s focused on,” he says. “Hopefully the DOL can take the advice of plan sponsors and how the disclosures need a little work, but there are probably some very simple tasks that can be completed to simplify even more the information that’s required to be provided.”

The Depository Trust & Clearing Corporation (DTCC) has created the Retirement Plan Reporting (RPR) solution, to increase transparency in fee disclosure compliance requirements, including 408(b)(2) and 404(a)(5). The tool, offered through DTCC’s National Securities Clearing Corporation (NSCC) subsidiary, is said to provide solutions with reporting retirement plan level information to mutual fund investor participants.

Proposed revisions to the Form 5500 implemented by the DOL last year can further participant understanding regarding investments and fees, says Szapiro.

Besides allowing the evaluation and comparison of a variety of retirement plans, the proposal would simplify indirect compensation reports regarding 408(b)(2) disclosure requirements [to plan sponsors], and in turn, benefit participants by improving transparency in the “management of their assets or revenue-sharing for administrative costs,” writes Szapiro in a Morningstar report.

“Many plan sponsors would benefit from more transparency around what other plan sponsor are paying,” he says. “Anything you can do to sort of contextualize what these fees mean, over time, is going to be valuable.” When plan sponsors understand fees, they can better explain them to participants.

He adds, “It’s very difficult for people to convert percentages into actual fees, but when it’s illustrated with, ‘if you invest this much this is what you’re paying annually with us, compared to what some of the alternatives are,’ then that could work.”