When it comes to what participants pay in fees in their 401(k) accounts, most Americans think they're getting a free lunch.
New research from the non-profit National Association of Retirement Plan Participants reveals 58 percent of working Americans don't realize they are paying fees on their workplace retirement savings plans.
But even among those who are aware access to the plans comes at a cost, most don't know how much. Only one in four surveyed by NARPP could accurately answer how fees are calculated.
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"It is imperative that investors understand the fees they are paying and the risks associated with high fees," said Laurie Rowley, co-founder of NARPP.
"Investors are essentially acting as their own pension managers and the consequences of not knowing fee information can have a profound and irreversible impact on a lifetime of savings," she added.
The irony is that those participants that think they pay nothing in fees account for about $35 billion in fee-revenue annually, or $835 per unwitting participant.
NARPP's study also set out to assess the value of fee disclosures, discovering a clear link between fee transparency and participants' satisfaction levels with service providers.
Investors were asked how useful they would find a standardized fee label on all investment options, akin to a nutrition label on foods, according to explanation in a press release from NARPP.
Overwhelmingly, participants said such disclosures would be useful, to the tune of 81 percent.
"I think the message is clear for service providers—if you want to gain the trust and loyalty of your customers, you have to do a better job at providing clear and transparent information on fees," said Rowley. "Transparency increases trust, and trust is the key to engagement."
Overall, a minority of participants—38 percent—report being satisfied with their provider's plan education programs, though wide discrepancy of satisfaction, or dissatisfaction levels exists.
Non-conflicted information, presented in the best interest of participants and the ability to teach investing basic were among the attributes participants most valued in plan education programs.
"If we are going to improve outcomes and engagement with retirement savings, service providers need to radically change the way they are communicating with and educating their participants," says Warren Cormier, Chief Behavioral Officer at NARPP and a principal at Boston Research Technologies, which partnered in the survey.
Charles Schwab's education programs ranked highest with participants, with BoA/Merrill Lynch, Wells Fargo, Vanguard and Fidelity and Empower (tied for fifth) rounding out the top five.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
