Clear and Consistent Language Needed in Plan Communications and Disclosures

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

Schedule an appointment

SCHEDULE NOW

Find a branch near you

FIND NOW

Important Legal Disclosures and Information

1. "Less jargon, more clarity," Empower (August 2021)
2. "401(k) Retirement Plans: Many Participants Do Not Understand Fee Information, but DOL Could Take Additional Steps to Help Them," GAO (July 2021)

The material presented herein is of a general nature and does not constitute the provision by PNC of investment, legal, tax, or accounting advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions expressed herein are subject to change without notice. The information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy.

The PNC Financial Services Group, Inc. (“PNC”) uses the marketing name PNC Institutional Asset Management® for the various discretionary and non-discretionary institutional investment, trustee, custody, consulting, and related services provided by PNC Bank, National Association (“PNC Bank”), which is a Member FDIC, and investment management activities conducted by PNC Capital Advisors, LLC, an SEC-registered investment adviser and wholly-owned subsidiary of PNC Bank. PNC does not provide legal, tax, or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“PNC Institutional Asset Management” is a registered mark of The PNC Financial Services Group, Inc.

Investments: Not FDIC Insured. No Bank Guarantee. May Lose Value.

PNC General Disclosure https://www.pnc.com/en/corporate-and-institutional/pnc-general-disclosure.html