Saturday, July 28, 2007

For the People, By the People


Last week, no fewer than a dozen industry trade organizations put their collective heads together and tried to help the Department of Labor—which has been working on a project regarding fee disclosure, and has asked for input—put together some workable principles on retirement plan fee disclosure (see Retirement Associations Submit Fee Disclosure Recommendations to DoL). Also last week, and perhaps not coincidentally, Congressman George Miller (D-California) did what he has been making noises about doing for some time now: He introduced a bill that would put the force of law behind better retirement plan fee disclosure, both to plan sponsors and plan participants (see Representative Miller Introduces Fee Disclosure Legislation). Miller’s 401(k) Fair Disclosure for Retirement Security Act of 2007 would go beyond mere words, however. It would mandate the inclusion of at least one “lower-cost, balanced index fund” on retirement plan menus.

It’s hard to credibly argue that we shouldn’t be telling participants how much they are paying for these retirement programs. On the other hand, we—rightfully, and this was a big part of the combined trade organization communication—don’t want participants to focus obsessively on fees alone. In this business, as in life generally, sometimes you get what you pay for, after all.

Where that leaves us, of course, is with a need to provide participants even more information about their retirement plan accounts than they receive at present. Now, we’re already burying them in paper—enrollment kits, prospectuses, fund information sheets, 404(c) communications, black out notices. Moreover, thanks to the Pension Protection Act (PPA), this year we began providing quarterly diversification notices (we’ll set aside for a minute the fact that we had to begin doing that before we had final clarity on exactly what was supposed to be in those notices). I have yet to talk to an adviser, third-party administrator, or plan sponsor who doesn’t think that we long ago passed the point of information overload—where participants are absolutely just dumping all of this paper straight into the waste basket. Yet, despite this knowledge, our solution is to create some more “information.”

Even if we weren’t at that stage, however, think about where we are as an industry with participant involvement with these accounts: automatic enrollment and contribution escalation, defaulted investments. We are rapidly entering a period where it’s going to be quite “fashionable” for workers to be even less involved with their retirement accounts than they have ever been. The mainstream media is already touting these “automatic” programs as something workers ought to be looking for and asking about. Kathy Kristoff, a personal finance columnist in the LA Times, last week said, “If you're lucky enough to have the newest kind of 401(k) plan, experts say you're off to a good start even if you don't lift a finger.”

Do we really think that this new generation of participants that didn’t even have to “lift a finger” to join the retirement plan will pay any attention to the current plan disclosures—much less the new ones that appear to be looming?

That won’t keep us from pushing for more and better disclosure, nor should it. At some level, whether participants read it or not, there’s just something about making people put information in writing—and knowing that SOME people WILL read it—that helps keep things on the “up-and-up.”

But, IMHO, we’ve had far too many “solutions” created by regulators and legislators—by lawyers for lawyers, if you will—and they’re not doing a bit to help the people for which they are ostensibly intended (here’s a hint: If a disclosure requires a footnote, it’s too complicated). At the risk of greatly oversimplifying the challenge, I wonder if we couldn’t develop an “elevator speech” for these programs, boiled down to the essence of what a participant really needs to know—deliverable in the space and time of an elevator ride.

I’ll bet we could do it. I’ll bet some of you have.

- Nevin E. Adams, JD

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