Many small business owners are confused by the fee notices and costs of their 401(k) plans and have trouble answering questions from employees, according to a new survey.
Over the summer the U.S. Labor Department established new rules to make it easier for 401(k) plan sponsors and participants to understand how much they are paying in 401(k) fees. But a recent national survey of 500 small business owners conducted by ShareBuilder 401k found many plan sponsors are still feeling confused when it comes to understanding the costs within their plans, and are unprepared for questions from their employees.
“Our survey results suggest many small business owners are still in the dark when it comes to their 401(k) plans and costs, demonstrating our industry has more work to do in disclosing fees transparently and in ways that are easy to understand,” said ShareBuilder 401k president Stuart Robertson in a statement. “Everyone has a right to know the fees they're paying for their 401(k) as over the course of a career, paying an extra percentage point can shrink your nest egg by hundreds of thousands of dollars.”
The survey found that while 92 percent of small business owners claimed to be aware of the new rules requiring 401(k) providers to distribute documents fully disclosing all plan fees, only 60 percent recall receiving the new documents at all.
Of the small business owners who did recall receiving new fee disclosure documents, the average time spent reviewing the documents was 16 minutes, and the vast majority (83 percent) walked away with questions about what their company should do now. Additionally, 68 percent said they are not fully prepared to answer employee questions about their plans.
More than a third (37 percent) of the survey's respondents have hired, or plan to hire, a consultant to help them to understand their options, and nearly as many (34 percent) have gathered, or plan to gather, benchmarking data to help them compare alternate retirement plans for their company. However, despite increased transparency, few business owners are using this as an opportunity to negotiate their plan with their current 401(k) provider (33 percent) or to shop for a new plan provider (26 percent).
Fees are typically based on a percentage of a plan’s total assets. On average, small business owners said they think 4 percent is a fair rate, which is significantly higher than the average 401(k) fee percentage, demonstrating lack of awareness about the options available and the impact that fees can have on long-term savings.