Representative George Miller (D-California) asked the House Education and Labor Committee to consider whether employers should be forced to give workers a clearer understanding of the fees they are paying and to explore whether the fees are carving too big a lump out of retirement savings.
In his opening remarks to the committee, Miller said that workers are “simply not in a position to compare plans” and that improving “401(k) transparency is just the beginning of our efforts to ensure that all American have access to a secure retirement.” However, Miller was countered by Representative Howard “Buck” McKeon, (R-California), who warned in his statement that forcing fee disclosure should be approached with caution.
“Politicians in Washington must resist the urge to simply overload workers with information – or worse, to mandate the distribution of out-of-context information that may lead participants to make poor investment choices,” McKeon said, in a press release. “A quick fix like that may help some of us feel good about ourselves, but it would do great harm to workers and retirees.”
Undue Burden on Employers
The committee heard from testimony on both sides of the issue, including from the American Benefits Council (ABC), which supported fee disclosure to the extent that it would be useful to investors, but warned against undue burden on employers.
In his comments to the committee, Chairman of the ABC Robert Chambers said: “Clear, meaningful disclosure is needed; overly complicated and burdensome disclosures would only push employers and service providers away from the 401(k) plan system. In particular, burdensome rules would be yet another powerful disincentive for small employers to maintain plans. Overly complicated disclosure would also confuse rather than inform participants; participants need clear meaningful information that is relevant to their decision-making.”
The American Society of Pension Professionals & Actuaries (ASPPA) also weighed in with its comments, calling for full transparency of all 401(k) fees to keep plan costs reasonable, but warned that disclosure requirements “must be consistently applied to all plan service providers regardless of the way plan services are delivered. For example, if disclosure is required of revenue-sharing payments to plan service providers even though not directly paid from plan assets, such disclosures should be required whether the revenue sharing is paid to an unaffiliated party or an affiliated party.”
The Government Accountability Office (GAO) urged Congress in November 2006 to consider requiring the disclosure of 401(k) fee information in a way that would allow investors to compare plan options, revealing that about 80% of those invested in 401(k) plans are not aware the fees they are paying.
The GAO also submitted comments to the House committee, which said that inadequate disclosure and reporting requirements may leave participants and the Department of Labor (DoL) without important information on these fees.
“The information on fees that plan sponsors are required to disclose to participants does not allow participants to easily compare the fees for the investment options in their 401(k) plan,” testified Barbara D. Bovbjerg, GAO Director Education, Workforce, and Income Security Issues. “In addition, (the Department of Labor) does not have the information it needs to oversee fees and identify questionable 401(k) business practices.”
The acting Assistant Secretary of Labor Bradford Campbell issued a statement relating to 401(k) fee disclosure, which said the DoL would soon be publishing a request for information in the Federal Register inviting suggestions from the public to improve the current disclosures applicable to participant-directed individual account plans.
Campbell said the department was planning to publish a proposed regulation in the spring requiring service providers to disclose to plan fiduciaries information concerning the providers’ direct and indirect compensation, fees, and other financial arrangements. “This will ensure fiduciaries have the information needed to assess both the reasonableness of the fees and potential conflicts of interest,” he said in the statement.
A Web cast of the House hearing can be viewed here.