In July 2021, the Government Accountability Office (GAO) reported the results of a survey of 401(k) plan participants assessing their understanding of fee disclosures found that many participants do not understand fee information, or do not understand that they pay fees. The results suggest the technical nature and jargon of fee disclosures can be challenging for employees. The GAO report supports our view that by using clear and consistent language plan sponsors can significantly enhance their employees’ understanding of retirement plans, keep them engaged in the plan, and prepare them for retirement.

61% of Gen Z says commonly used financial terms make them hesitant to talk about money.[1]

45% of participants are unable to use disclosures to determine the cost of investment fees.[2]

41% of participants incorrectly believe that they do not pay any 401(k) fees.[2]

What You Should Know

Providers should simplify the language used in communications, particularly when using plan and investment terms. For example, “complete financial picture” is likely to be more understandable than “holistic portfolio review.”

Consistency in terms used throughout participant communications can help avoid confusion. Readers can be confused if “retirement income” and “retirement paycheck” are used interchangeably.

Surveys can help evaluate the language and communications channels for different workforce demographic segments. Ideally, language and communications channels should be customized according to the ages and backgrounds of employees. For example, older employees may prefer one-on-one meetings while younger employees may prefer digital communication.

The GAO recommends that the DOL take five specific actions to require:

  • The use of consistent terms and measures for investment fees in retirement plan fee disclosures
  • Quarterly fee disclosures that provide participants with the actual cost of asset-based investment fees paid
  • Information concerning the cumulative effect of fees on savings over time
  • Fee benchmarks for investment options to assist participants in understanding if their investment costs are competitive
  • Ticker information for plan investment options to help participants research and compare investments