Participant Disclosure: Helpful or Hurtful?

Posted on Aug 14, 2012 by  in Retirement Plans for Business, Retirement Readiness

Having just finished creating documents that will help our clients comply with the DOL’s soon-to-be effective participant disclosure rules, I have become seriously concerned that 401(k) participants will not actually benefit from receiving the information required by these regulations.  In theory, I think that the desired goal of the regulations is noble: to give participants key information about the investments offered to them and their associated costs so they can make better savings decisions.  However, I am worried that these regulations will do nothing more than flood participants with information, nearly all of which is already available to them.  Unfortunately, participants will be inundated with pages and pages of paper that, in most cases, won’t even provide information about who is being paid for what services and why investing in a 401(k) plan actually costs them something. 

Worst of all, I fear that the net result of the new disclosure rules may be negative.   The increased administrative costs required to develop and distribute new disclosures will put an increased burden on small employers.   Some smaller employers may simply become “fed-up” with the administrative burden and potential liability associated with these regulations and will choose to terminate their plan all-together.  From the participant’s perspective, the extreme weight placed on costs may result in some participants choosing low cost index funds that might be a good strategy for some investors but not for all.  Even worse, participants could simply become overwhelmed and choose to stop contributing (and saving for retirement) entirely.  That result would be truly unfortunate, especially in light of recent research suggesting that American workers are already saving too little for retirement.  If the goal is to help employees prepare for a successful retirement, I think that we would be better-off trying to support employers by making it easier to set up and maintain retirement plans and by providing employees with limited, but meaningful information.

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