The 401(k) Fair Disclosure for Retirement Security Act, a bill intended to strengthen 401(k) fee disclosure to plan fiduciaries and participants, was introduced on April 19, 2009, by House Education and Labor Committee Chairman George Miller, D-Calif., and Rep. Robert Andrews, D-N.J. The bill would require 401(k) fund managers to break down the fees they charge into four categories:
1. Plan administrative and recordkeeping charges.
2. Transaction-based charges.
3. Investment management fees.
4. Other charges as may be specified by the Secretary of Labor.
In February 2009 a Senate version, titled The Defined Contribution Fee Disclosure Act, was introduced in that chamber by Sen. Tom Harkin, D-Iowa, ranking member on the Senate Health, Education, Labor and Pensions Committee. Harkin vowed to fight to ensure that workers are aware of "excessive fees."
Those favoring greater mandatory disclosure praised the House measure. "Workers need to know that fees eat away at their 401(k) balances," said Karen Friedman, policy director of the Pension Rights Center, a labor advocacy group, in a statement. "Addressing this issue will help to ensure that workers are getting their money's worth for their 401(k) investments."
Friedman noted that a Government Accountability Office study found that for every 1 percent increase in the fees workers pay in their 401(k) plans, their retirement savings could decline by as much as 17 percent over a 20-year period.
She criticized the operation of defined contribution plans more broadly. "While the fees associated with 401(k) plans can eat away at an individual’s retirement savings, they are just one of the many inadequacies in our nation’s patchwork retirement system," Friedman stated. "401(k) plans were never intended to be the sole source of retirement income aside from Social Security. This is why 401(k) plans are woefully inadequate in preparing workers for a secure retirement."
She urged policymakers to "take a hard look at the nation’s retirement system and ask whether it works or if we need something more." And, as an alternative, she called for developing "a new future retirement system that provides a universal, secure and adequate retirement income for American workers."
But the ERISA Industry Committee (ERIC), representing employers who sponsor retirement plans, offered a decisively negative take on the House bill and urged a comprehensive rewrite of the measure, saying that it would otherwise "create a complex fee disclosure regime that would ultimately confuse participants and dramatically increase the litigation risks already facing 401(k) plan sponsors."
A statement from ERIC expressed support for enhanced fee disclosure but warned the House committee that "any new disclosure regime must be meaningful to participants and not overwhelm them with voluminous granular data that has little impact on a participant's investment decisions."
"Participants today are discouraged from reading the pages and pages of documents that current law requires them to be provided when selecting 401(k) investments," said ERIC President Mark Ugoretz. "The proposed bill would make this unfortunate situation even worse."
Other red flags raised by opponents include concerns about how unbundling fees, or listing the fees individually, could lead to higher administrative costs, and fears that the act would encourage new opportunities for trial lawyers to sue plan sponsors. On the latter point, ERIC envisions "participant suits disputing whether plan sponsors knew or should have known that the information provided by service providers was inaccurate, as well as disputes over whether component fees or revenue sharing were unreasonable."
Nevin E. Adams, editor-in-chief of plansponsor.com and planadviser.com, web sites that provide news and information for retirement benefit managers, wrote in an April 27, 2009, commentary that "having been on that side of things, I know how complicated it can be to provide those disclosures—and having worked and communicated with plan sponsors and plan participants for most of my adult life, I also know how unlikely many are to be attentive to those disclosures that may be so costly to provide."
Still, he continued, "no one is well-served by what appears to the average participant (or congressman) to be an enduring reluctance to provide a straightforward answer to a perfectly legitimate question: 'How much money are you taking from my account?' "
(Testimony from the April 22, 2009 hearing before the House Health, Employment, Labor and Pensions Subcommittee can be found here.)
Stephen Miller is an online editor/manager for SHRM.
DOL Proposes Rule to Improve 401(k) Fee Disclosure to Participants, SHRM Online Benefits Discipline, July 2008
Plan Sponsors' Mixed Perspectives on Fee Disclosure, SHRM Online Benefits Discipline, April 2008
401(k) Fee Disclosure Hearings Warn of New Burdens, SHRM Online Benefits Discipline, October 2007
401(k) Fees Matter: Tips for Reining Them In, SHRM Online Benefits Discipline, August 2007
Hide in Plain Sight: Finding Hidden Fees in 401(k) Plans, SHRM Online Benefits Discipline, February 2006
SHRM Online Benefits Discipline