To disclose or not to disclose?

Within Washington DC, debates are currently underway, which deal with the level of fee disclosure, 401k participants receive. If you don’t understand exactly the workings of the 401k plan, you will assume that more disclosure is always better. What do believe it if I tell you that this might not be the case with regards 401k plans?

When you get a closer look at all the factors involved you will realize that at the end of it, the beneficiaries will not be getting any additional benefit from clear disclosure. More disclosure is necessary, there’s no doubt about this. If provided with more adequate and detailed information, plan fiduciaries will be in a better position when they come to take important decisions regarding investments.

It is consequential disclosure that will make a positive difference. Nowadays if an individual would like to enquire about the expenses he is paying on his 401k plan, can do so without difficulty. Nor is it difficult to understand the content and the meaning of the information. The problem comes when the individual comes to interpret the information received, since a number without any base for comparison means nothing at the end of the day.

The truth is that most people don’t really care about the workings of their 401k plans, what they do care is about the sum of money they see on their statement. When going through their 401k plan information, individuals will not be able to point out which are the meaningful parts, and which parts require questioning.
And what about the cost of disclosure? Increasing disclosure would mean increased administration work, which at the end results in increased costs. I have no doubt in my mind that these costs will be then transferred to the individuals.

The benefit of disclosure for beneficiaries lies in their ability to be able to choose between the various investment options provided. They might also be able to push the committee to making beneficial changes on the choice of investments.
So in conclusion, better disclosure to the plan fiduciaries will have a constructive impact on the investment process, thus it will also put the contributors in a better position. On the other hand, better disclosure to contributors is not really of any assistance, since the contributors simply don’t have enough interest, thus this will only result in additional cost.

Reference: http://www.401khelpcenter.com/401k/graham_fee_disclosure.html