Fee Disclosure Legislation Introduced in House

The 401(k) Fair Disclosure for Retirement Security Act of 2007 would also require 401(k) plan service providers to clearly disclose all potential conflicts of interest, so participants and sponsors can determine for themselves whether service providers are acting in the best interests of plan beneficiaries, according to a statement on Miller’s Web site.

The statement from Miller, chairman of the House Committee on Education and the Workforces,said the legislation would:

• Require plan administrators to disclose, in clear and simple terms, all fees charged to plan participants each year;
• Help workers better understand their investment options by providing more detailed information on investment strategies, risks, and returns when they sign up for their company’s 401(k);
• Ensure that all fees and conflicts of interest are disclosed annually to employers who sponsor 401(k) plans; and
• Enhance the Department of Labor’s oversight of 401(k) plans.

Industry Reaction

“While we believe that the Department (of Labor) has ample authority and experience to issue meaningful regulations without new legislation, ERIC will review Rep. Miller’s proposal to see if it is consistent with the approach that will get the job done in a timely and effective manner,” said ERIC President Mark Ugoretz, in a statement. “We are also concerned that the legislative process may in fact delay rather than ensure the issuance of new disclosure rules that employees and employers need.”

“Meaningful disclosure of 401(k) fees is essential for both plan participants and sponsors to make smart financial decisions, but any legislative approach must first consider the tremendous value that 401(k) plans represent in today’s retirement savings world,” Lynn Dudley, American Benefit Council vice president, told reporters in Washington, D.C. Thursday.

In a statement, Securities Industry and Financial Markets Association (SIFMA) president and CEO Marc Lackritz agreed that the Department of Labor has the authority to provide for any enhancements to the current regulatory framework and has the most flexibility to adopt rules that can adjust if the marketplace changes. The organization supports “clear and meaningful disclosure,’ Lackritz said, but commented that “Policymakers must be mindful that information should empower participants — not paralyze them. Participants are already overwhelmed by the amount of information they receive. Disclosure is not the same as education. Any additional disclosure requirements should meet a high standard: information should deliver far more value to the participant than the cost it would add to the plan to provide it.’

Focus on Fees across Regulatory Bodies

The focus on 401(k) fees in Congress is being driven by four main factors, according to Bridget Flynn Hagan, Senior Director of Government Relations at Nationwide, speaking at PLANSPONSOR’s Plan Designs conference last month: having the Democrats, who are being very aggressive in oversight of the Bush administration, in control of both houses of Congress; the recent Government Accountability Office report on plan fee disclosure; the recent litigation in this space, specifically the wave of suits filed by St. Louis law firm Schlichter, Bogard & Denton; and increased media reports.

If nothing else, attorney Steve Saxon, Principal with Groom Law in Washington, D.C., said, at the conference, the lawsuits filed by the Schlichter firm did create enough interest that the industry is now presented with a unique situation in which Congress, the courts, and the regulatory bodies are all focusing on the same thing. Further, the Department of Labor (DoL) is not waiting for Congress, Kaplan asserted, saying the regulator is taking initiative on its own on the 408(b)(2) project, focusing on what a plan fiduciary know before entering a relationship with a service provider. (See Representative George Miller on a Mission, Panel Reports)

A report by the Government Accountability Office released last year said Congress should consider amending ERISA to require all sponsors of participant-directed plans to disclose fee information of 401(k) investment options to participants in a way that facilitates comparison among the options. The report said that even small fees can have a large impact on participants’ retirement savings, and said research has found 80% of participants in 401(k)-style plans do not know how much they are paying out of their plan accounts in fees (See GAO Urges Congress to Consider 401(k) Plan Fee Disclosure).