THE IMPACT OF TRANSPARENCY
Joe Frustaglio and Bridget Hagan

Joe Frustaglio is National Sales Manager, Nationwide Retirement Sales. Bridget Hagan is Associate Vice President, Nationwide Financial Government Relations.
 
 

THE CONCEPT OF TRANSPARENCY, which has affected so many other industries, is bringing its spotlight focus to the retirement plan arena. For the past few years, federal regulatory agencies and Congress have been actively discussing the issue of retirement plan fee disclosure. In 2007 and 2008, the Department of Labor (DOL) proposed regulations under Sections 404 and 408(b)(2) of the Employee Retirement Income Security Act of 1974 (ERISA) that would have created new rules for disclosure of retirement plan fees and compensation.

While the regulations have not been adopted, it is clear that regulations or legislation are on the horizon and will affect the industry at all levels-from plan sponsors and participants to investment professionals and their approach to business.

Impact on the industry

Some larger plans have, in general, been able to access retirement plan solutions that were lower cost and provided greater disclosure and transparency. But not all plans have enjoyed that same buying power. Under greater transparency regulations, smaller plans will be able to see the same disclosure and transparency in their retirement plan options as larger plans.

This will create opportunity for the development of new products with a focus on simplicity and greater fee disclosure. Investment professionals, administrators, and plan sponsors will all be looking for the product and service provider that will make it easiest for them to adhere to the new requirements quickly and easily. Nationwide, for example, introduced a new retirement plan program, called Nationwide Retirement Clear Advantage, which provides clearer, more detailed disclosure of fees. Nationwide strives for full disclosure around all of its programs, and Clear Advantage was designed to highlight those efforts.

Greater transparency, however, will not necessarily mean a reduction in fees. Fees today are already much lower than they were just 10 years ago thanks to advisors and administrators who have worked to reduce these fees to create a more competitive marketplace. The challenge, instead, will be to show value within the fees.

For investment professionals, this means showing the plan sponsor what they are receiving in return for their compensation. Whether it's conducting enrollment meetings, providing regular fiduciary reviews, or offering participant education programs, they will need to reflect the value they bring for their compensation.

The new focus on disclosure will also likely require a certain level of product knowledge and sophistication from retirement plan professionals to satisfy information disclosure requirements. This could lead to a potential shake-up in the type of professional who offers retirement plans. Those who don't focus on retirement plans as a core offering may find the new regulations more of an obstacle than they'd like when selling and servicing a plan. The result could mean fewer, and a more focused, core of investment professionals offering retirement plans.

Currently, plan sponsors have an obligation to review the fees and compensation associated with their plan to ensure they are reasonable. In the future, as part of plan sponsors' roles as fiduciaries, they may be expected to disclose a greater level of detail related to plan and investment information to plan participants. Plan participants may need to be given more education programs and materials to help them better understand their fees and information they receive from their employers and within their plan statements.

The opportunity

In the end, the amount of information provided must be balanced to ensure that plan sponsors and their participants are given enough information to make educated choices, but not so much as to create confusion or hinder a plan sponsor's ability to participate in the competitive marketplace.

It may be a difficult transition in the beginning, but the need for greater transparency in the financial world is a legitimate concern given that for many Americans, defined contribution plans have become their primary, and oftentimes sole, resource for helping them plan for retirement. There is still real opportunity for retirement plan providers and those within the industry to help shape the plan sponsor and participant experience now while Congress is still determining what is working and what isn't before they finalize their direction.

The Nationwide Group Retirement Series includes unregistered group fixed and variable annuities and trust programs. The unregistered group fixed and variable annuities are issued by Nationwide Life Insurance Company. Trust programs and trust services are offered by Nationwide Trust Company, FSB a division of Nationwide Bank. Nationwide Investment Services Corporation, member FINRA. In MI only: Nationwide Investment Svcs. Corporation. Nationwide Mutual Insurance Company and Affiliated Companies, Home Office: Columbus, OH 43215-2220.

Nationwide, Nationwide Bank, Nationwide Financial, the Nationwide framemark, ClearAdvantage, Life Comes at You Fast and On Your Side are federally registered service marks of Nationwide Mutual Insurance Company. PNM-1362AO (01/2009).