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401k Fee Transparency Difficult in Annuity Investments

401k Fee Transparency Difficult in Annuity Investments

401k fee transparency becomes much more difficult to understand when plan assets use annuity structures.  Plan Sponsors struggle with the entire 401k fee transparency concept without annuity products in the 401k plan.  When annuity products are used within the plan, 401k fee transparency becomes more complex.  At the conclusion of a Plan Sponsor University (TPSU) Fiduciary Education Program held at the Wake Forest University in Charlotte, NC, TPSU Founder, and CEO, Fred Barstein spoke with TPSU Program attendee, Jeanne, the Director of Finance at her firm.  Jeanne’s firm has approximately 250 employees.  Jeanne outlines the additional complexity surrounding 401k fee transparency when annuity contracts are offered as 401k plan investments.

Full Transcript Here

Fred:
This is Fred Barstein in Charlotte where we just completed a TPSU program at Wake Forest downtown campus, and I’m here with Jean. Welcome Jean.

Jean:
Hi. Thank you.

Fred:
Okay if we ask you a few questions?

Jean:
Yes.

Fred:
Okay, great. Thank you. But before we do, tell us a little bit about yourself, your role and the size of your company.

Jean:
Okay. I’m Director of Finance and we have around 230, 240 employees.

Fred:
Great. So during the program, we had a lot of discussion about retirement income, the need for something like that, but a lot of people including yourself voiced concerns. So what were your concerns?

Jean:
My concern basically is around annuities. I agree with the concept of the annuity, however, I feel like a lot of people get annuities and they’re not informed on the true cost of the annuity. And then as far as a retirement vehicle, deferred annuities and so forth, I have concerns and I feel like some of our employees would have concerns about the financial viability of the companies that you have the annuities with.

Fred:
Because it’s such a long term.

Jean:
Correct. Correct. It’s very long term and what are the guarantees, that when the retirement comes, when their golden years roll around, that money is going to be there for them?

Fred:
Right. So I know that there’s a lot of companies saying, “Well as long as we get safe harbor we’re fine,” but even if there’s safe harbor you’re concerned on behalf of your employees-

Jean:
Correct. Correct.

Fred:
… to do it just even if you don’t have that liability. And you also brought up something about the lack of transparency, right?

Jean:
Yes. Yes.

Fred:
What’s your concern about that?

Jean:
It’s been my experience in looking at these kinds of products that the companies that offer them tend to not disclose the true fees involved and the true costs, and I feel like that’s another concern that I have as far as steering employees to invest in these things.

Fred:
It’s also probably a concern of yours with everything not knowing, having transparency.

Jean:
Well, very true. I mean our whole plan, and of course in recent years they’re being forced to be more transparent, and so that’s a good thing.

Fred:
Right. And what does lack of transparency make you feel about the company you’re working with?

Jean:
As far as our profit-sharing plan? Well, you just have the sense, and it could be not true, but because they’re not transparent and because of the way they charge these fees, it seems could be manipulative, that you don’t think you’re getting best bang for your buck, which may or may not be true, but you just don’t know.

Fred:
So if you’re not sure, you generally will tend to think, “No, I’m probably not.” Not like, “Oh yeah, I’m getting a great deal.”.

Jean:
Right. Right. Right. Exactly.

Fred:
So lack of transparency does not make you feel good about it.

Jean:
It does not.

Fred:
No, I agree. Totally. So final question, a couple of things you learned that you want to try to take back to your company and implement?

Jean:
Well, I think that networking is great, to have people who are dealing with the plans from other companies and get other perspectives. And so the whole idea of the auto-enrollment is a foreign concept for our firm, so I think that’s something that we need to consider. So that’s my number one takeaway.

Fred:
Right. The industry thinks everybody’s auto-enrolling. In the SHRM research, it was like 36%.

Jean:
Right. Which I didn’t know that, but we had not. It’s not something that we had brought up before, but I think it’s really good … I like the concept of it and I think it’s a really good tool to get people to save.

Fred:
Great. Very good. Well, thanks for your time. I know you were a reluctant participant, but you’ve done great.

Jean:
All right. Well, thanks.

Fred:
And thank you for watching 401k TV. Stay tuned.

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