House Subcommittee Passes Fee Disclosure, Advice Bills

The House Subcommittee on Health, Employment, Pensions and Labor has approved the 401(k) Fair Disclosure for Retirement Security Act (H.R. 1984) and the Conflicted Investment Advice Prohibition Act (H.R. 1988).

The 401(k) Fair Disclosure for Retirement Security Act requires fee disclosure about the investment options contained in employers’ 401(k) plans (see “Miller, Andrews Introduce 401(k) Fee Disclosure Bill). The Conflicted Investment Advice Prohibition Act updates the investment advice regulations to the Pension Protection Act to allow for independent investment advice (see “Andrews Introduces Advice Legislationand “Andrews Legislation Raises Questions).

American Benefits Council Comments

Before the committee’s vote, American Benefits Council President James A. Klein commended the subcommittee for preserving the broad-based provision of investment advice to employees while still protecting the many non-conflicted advice arrangements approved by the Internal Revenue Service (IRS) before the enactment of the Pension Protection Act of 2006 (PPA), but identified several liability issues raised under the bills.

“Plan sponsors and other fiduciaries cannot be expected to investigate and audit fee disclosure information provided by service providers unless the information is clearly questionable on its face,” Klein said. He argued that, inevitably, some of the information provided to sponsors by mutual funds will be incorrect due to inadvertent errors, and if the plan sponsor or the participants act on the erroneous information, this should not expose the plan sponsor to liability.

Likewise, Klein said service providers should not have a duty to investigate and audit fee information provided by their service providers unless the information is clearly questionable on its face. He contended that if service providers had to audit information provided to them by other service providers, plans would be unaffordable.

Klein also suggested the bill should make it clear that, by obtaining and disclosing the comprehensive information required by H.R. 1984, plan fiduciaries will have satisfied their fiduciary duties regarding the amount of fee information that they should obtain and disclose.

“Also importantly, coordination between legislative and regulatory measures is essential to a seamless transition for plan sponsors and participants. Lawmakers should revisit the bill’s effective date to address this concern,” Klein said.

Republican Objections

House Republicans expressed concern that the bills would impact Americans’ ability to save for retirement by making 401(k) plans more complex and costly while reducing workers’ access to individualized investment advice.

“Republicans share the goal of improving retirement savings options for workers. Unfortunately, the legislation approved today by Democrats on a party-line vote fails to achieve that goal,” said Representative John Kline (R-Minnesota), in a statement. “Worse, these bills could actually harm workers with a one-two punch that makes plans more complicated and limits access to the individualized investment advice that could help workers navigate the system.”

The Republicans contend that H.R. 1984 calls for voluminous new disclosure that could overwhelm participants without providing substantial benefit, and that it picks winners and losers in the investment industry and puts the federal government in the business of dictating what type of savings plans must be offered to workers.

They expressed serious reservations about H.R. 1988, arguing that it would drastically limit the availability of investment advice by undoing the landmark 2006 reforms and erasing protections that had existed in the law even before the Pension Protection Act.