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Encore
A blog about living in and planning for retirement

401(k) paperwork gets mixed grades on clarity

A lot is riding on the 401(k) industry’s new disclosure rules, which the Department of Labor hopes will give small business owners a plain-English explanation of what their retirement plans cost to run. But while some of these new forms are getting high marks, others appear to be adding to the confusion. (See our take here.)

Just what do the new documents look like? To give readers a sense of the feel, we asked Boston-based consulting firm Dalbar to give us two examples, one which earned high marks and one which earned low marks.

Dalbar scores T. Rowe Price’s version at 84.4 out of 100, with top marks for the way it presents costs and describes services the Baltimore-based money-manager provides. T. Rowe wasn’t perfect, however. It did get some points deducted for less-than-ideal descriptions of its conflicts of interest, among other things. A T. Rowe Price spokesman said the company believes it achieved its goal of satisfying the new rules’ technical requirements and communicating clearly to its clients.

Another well-known company, Morgan Stanley Smith Barney, received a much lower score, 31.2 out of 100. While T. Rowe Price’s form is a merciful eight pages, the version from Morgan Stanley is 43 pages and comes with a 39-page supplement. The documents are hardly beach reading. The first sentence of the main disclosure, which begins with the phrase “Pursuant to the U.S. Department of Labor’s regulations under Section 4018(b)(2)…”, is more than 70 words long.

Ed O’Connor, head of retirement services at Morgan Stanley Wealth Management, says the form’s length reflects the enormous range of services the company offers, and he urges small business owners that have questions to talk to their MSSB financial adviser. “It’s a challenge between being thorough and being succinct,” he says.

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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.

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