Combined 401(k) Fee Disclosure-Advice Bill Heads for House Floor

A closely watched U.S. House bill mandating comprehensive 401(k) fee disclosures and dealing with plans providing investment advice made it out of committee on Wednesday.

A news release from the House Education and Labor Committee said the panel approved the 401(k) Fair Disclosure and Pension Security Act (H.R. 2989) on a 29 to 17 vote and sent it on to the full House for consideration. According to the committee, the measure approved Wednesday combines provisions from the recently approved fee disclosure and investment advice bills (H.R. 1984 and H.R. 1988) (“House Subcommittee Passes Fee Disclosure, Advice Bills“).

“It is beyond time that American workers have basic and clear information on costs and choices contained in their 401(k) plan,” said Representative George Miller (D-California), committee chairman. “The economic collapse has fueled Americans’ concerns about whether they will have enough savings to last them throughout retirement. This bill will give Americans a fighting chance to strengthen their retirement and increase our nation’s future economic security.”

According to Bloomberg, Republican opponents of the measure said they disagree with the increased regulation of investors. “What we do not support is disclosure that has no real value,” said Representative John Kline of Minnesota, the panel’s ranking member, according to Bloomberg. “It’s a dangerous role for the federal government.”

According to the committee announcement, the bill’s mandates include:

  • A single dollar figure on quarterly statements representing all fees deducted from participants’ accounts;
  • A fee breakdown from service providers and plan administrators to sponsors presented in four categories: administrative fees, investment management fees, transaction fees, and other fees. Service providers will also be required to disclose financial relationships so companies that sponsor 401(k) plans can make sure there are no conflicts of interest;
  • At least one low-cost index fund in the fund lineup to receive protection against liability for participants’ investment losses; and
  • That investment advice offered to participants be based on the workers’ needs – not the financial interest of those providing the advice.

According to the announcement, the measure also includes adjustments to pension funding rules to help defined benefit sponsors better weather the economic downturn. Miller said the current funding requirements have put a strain on traditional defined benefit plans that are challenged by the recession. “Unless we provide relief with these modest adjustments, plan sponsors may have to choose between making forced contributions, freezing plans or cutting jobs,” Miller said, according to Bloomberg.

The bill gives the U.S. Department of Labor (DoL) enforcement powers over the disclosures. Two DoL fee disclosure rules have been delayed since the beginning of the Obama Administration (see “Caught Between Two Administrations”).

Investment Advice Section

Lawmakers backing the new regulations on providing investment advice have argued that, as an earlier bill stated, “participants are exposed to increased risk and lack meaningful access to independent investment advice to help them better plan for their retirement.” For the purposes of the new legislative scheme for providing advice, the measure defines an “independent investment adviser” as one who is a fiduciary of the plan by virtue of the advice they provide to the plan.

The new legislative scheme also provides that:

  • An independent investment adviser must be: a registered investment adviser (RIA); a bank or similar financial institution, provided that the advice is provided by the trust department of the organization; or a registered representative.
  • The independent investment adviser must not “provide or manage” any plan assets in the individual accounts for which the advice is being provided and the fees received for that advice cannot be received from those that “market, sell, manage or provide investments in which plan assets of any individual account plan are invested.”
  • In addition to stating that the fees must not vary based on the advice provided, the bill also says they must be calculated according to one or more of the following: flat-dollar, flat percentage of plan assets, per-participant basis, or a written agreement.

The bill also provides for the provision of advice using a computer model that meets specific standards, as do pending regulations from the Department of Labor.


One industry group gave the panel kudos for including the DB funding provisions.

“This relief will help restore companies’ economic footing. We look forward to the committee returning to this issue as soon as possible to more fully address substantive relief to specifically address the 2008 losses,” said American Benefits Council President James A. Klein, in a statement issued after the vote.

For their part, committee Republicans put out a statement after the vote blasting the panel’s action.

“Workers and retirees are struggling in this economic downturn, facing losses in their savings and uncertainty about their future,” said Kline. “We had an opportunity today to enact bipartisan reforms that would provide quality information to consumers and meaningful relief to employers. Instead, Democrats insisted on pushing through their own plan on a party-line vote, ignoring serious concerns about harmful consequences for workers and retirees.”

More information about Wednesday’s vote is available here.

Text of the bill approved Wednesday is available here.