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Making Transparency a Reality
SIMPLICITY AND TRANSPARENCY
in
retirement plans is the new rule of the day. For both
plan sponsors and participants, simple plan designs and
clear disclosures of fees and compensation is
increasingly demanded.
For participants, especially Boomers nearing or at
retirement, today’s economic uncertainty is a pressing
concern. Participants are watching their portfolios with
anxiety and are paying increased attention to the
security of their funds and where their investment money
really goes.
Plan sponsors are also feeling pressure in this unstable
economy. As budgets tighten, employers are increasingly
concerned about plan costs and want to wring maximum
value out the fees they pay.
This increased focus on transparency adds a new level of
complexity for providers, who feel pressed to provide
increased details for information-hungry plan sponsors
and employees.
Both the U.S. House of Representatives and the U.S.
Department of Labor (DOL) have proposals under review
that will, if approved, mandate increased transparency
and disclosure in 401(k) retirement plans.
Whether the new regulations are approved or not,
transparency and simplicity is a trend that plan
providers must accept as a new reality.
Regulation may be coming
The 401(k) Fair Disclosure for Retirement Security Act
(H.R. 3185), recently cleared the House Education and
Labor Committee. The similarly-themed DOL regulations
are also under consideration. In general, these
proposals will require 401(k) service providers and plan
administrators to:
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Provide complete disclosure of fees charged on
401(k) plans;
-
Provide education for participants to understand
investment risk, return, and investment objectives;
-
Offer at least one low-cost index fund option;
-
Disclose financial relationships and potential
conflicts of interest.
Keys to dealing with disclosure demands
Smaller companies may be less prepared to respond to the
increased demand for education, transparency and
fiduciary oversight. Providers in this market will
respond differently to the new regulations, so when
comparing plans, it will help to examine the
fundamentals.
Providers will need to go further in providing clear
disclosures and ongoing education to help plan sponsors
and participants understand their fee situation.
Transparent, easily understandable fee statements and
regular updates will ensure regulatory compliance and
satisfied sponsors and participants.
A broad menu of non-proprietary investment options –
including index funds – will help avoid conflict of
interest concerns. Providers that do not offer
proprietary funds can more easily base their fund
options on what they feel is the best value for their
clients.
Look for plans with backing from an independent RIA, and
make sure they truly stand behind their offerings.
Independent RIAs can provide fiduciary guarantees that
plan investment options satisfy ERISA requirements. This
is especially important for small businesses who may not
have the resources to manage these requirements on their
own.
Finally, plans should go the extra mile in providing
education and assistance for participants regarding
their investment options and the associated costs.
Benefiting smaller companies
Whatever the outcome of the proposed federal
regulations, simplicity and transparency is the new
order of the day for plan providers. A good provider
will be able to meet this demand and remain
cost-effective. Meeting these challenges will not always
be easy, but providers will be rewarded in the end by
satisfied sponsors and participants.
Jim Daniel is executive vice president of Corporate
Retirement Plan Distribution at Symetra Financial. He
can be reached at
jim.daniel@symetra.com or 1-800-706-0700.
Headquartered in Bellevue,
Wash., Symetra Financial Corporation provides retirement
plans, employee benefits, life insurance and annuities
through a national network of independent advisors and
agents. For more information, visit
www.symetra.com.
AORP69-0408
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