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Associations Call for Clarity in 401(k) Fee Disclosures

By Beth Mirza  8/1/2007
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The Society for Human Resource Management (SHRM) is part of a group of 12 associations that submitted recommendations to the U.S. Department of Labor (DOL) to improve the disclosure of information to retirement savings plan participants.

Representing employers that sponsor retirement savings plans and the financial institutions that provide services to such plans, the 12 associations are SHRM, the American Bankers Association, the American Benefits Council, the American Council of Life Insurers, the Committee on Investment of Employee Benefit Assets, the ERISA Industry Committee, the Financial Services Roundtable, the Investment Company Institute, the National Association of Manufacturers, the Profit Sharing/401k Council of America, the Securities Industry and Financial Markets Association and the U.S. Chamber of Commerce.

In April 2007, the DOL issued a request for information on fee and expense disclosures to participants in individual account plans. In their 11 recommendations, the associations stressed that plan participants need enough information to make sound decisions, but not so much information that they are overwhelmed. Their top four recommendations are:

1. Fee disclosure to participants serves different needs than fee disclosure to plan fiduciaries. Fiduciaries (typically the employer plan sponsor) make decisions based on detailed information on the services provided, fees charged and compensation earned by the plan service providers. Participants, however, do not choose service providers—they choose investment options from a pre-selected service provider. Too much information could “impair sound decision-making,” the associations said in their comments. An overload of detail on plan fees could falsely inflate fees’ importance in selecting investments. Participants will be overwhelmed, according to the comments.

2. Fee information should appear alongside other key information participants need to make investment decisions. Don’t elevate fee information or make it seem as if fees are the most important factor in selecting investments, the comments urged. “An undue focus on fees … might encourage participants to select the plan’s lowest-cost investment options, which may not be the best choice for a participant.” Include other information alongside fees, the comments said, such as the investment objective and product characteristics, its historical performance and risks, and the identity of the investment advisor or product provider. Give plan fiduciaries the flexibility to decide how best to present the information to the plan participants.

3. Disclosure of fees and other plan investment information should facilitate comparisons. Present the information in such a way that plan participants can compare and contrast the plan’s investment options. But still, the comments said, allow plans flexibility in how they construct the comparisons.

4. Participants should have access to fee and other investment information at enrollment and annually thereafter.

In addition, the associations asked that:

  • Enhanced fee disclosure requirements apply to all participant-directed retirement plans.
  • Disclosures include expenses that affect participants’ choices.
  • Policymakers be sensitive to costs when imposing disclosure requirements.
  • Web sites and intranets be used to communicate with plan participants.
  • Plans disclose to participants the administrative and transaction dollar charge deducted from participant accounts.
  • Participants have access to education materials that provide context for fee and other plan investment information—such as the web site , which, under the Pension Protection Act, must appear on all participant-directed plans’ quarterly benefits statements. Participants can visit this link to learn more about individual investing and diversification.

To read the comments in their entirety, visit .

Beth Mirza is senior editor for HR News . She can be reached at

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