The issue, the letter writers told the DoL regulators pondering potential new fee disclosure mandates, was precisely how any federal requirements were drafted. Specifically the correspondents cautioned, rulemakers needed to be particularly conscious of not drowning participants in unintelligible data or effectively forcing employers not to have a plan because of the added expense and bureaucratic headache.
The correspondents also cautioned that fee information given to participants needed to be placed in a broader context that included issues such as proper asset allocation and overall investment risk.
The 82 letters posted to the DoL’s Web site were in response to the agency’s April 2007 request for public feedback about how it should handle the fee disclosure issue (See DoL Asks For Advice on 401(k) Fee Disclosures ).
“It is important that participants in these plans have appropriate information about fees and expenses to assist them in making informed participation and investment decisions,” wrote Jan M. Jacobson Retirement Policy Legal Counsel American Benefits Council. “It is critical, however, that any fee disclosures actually be useful to typical plan participants. Put simply, more disclosure is not necessarily better disclosure. At best, too much information will can simply result in disclosures that get ignored. At worst, too much information can exacerbate the paralysis that often affects plan participation decisions, thereby discouraging employees from voluntarily saving for retirement.”
“It is also important to understand that fees and expenses are only one component of the information that participants need to consider when deciding to invest their assets in a workplace retirement savings plan,” agreed Ralph Derbyshire, Fidelity Investments Senior Vice President & Deputy General Counsel. “Participants must be provided information that enables them to evaluate the overall investment program offered through the plan.”
Jacobson also asserted that any fee disclosure mandates needed to be broad enough include investment vehicles other than mutual funds. “Many plan investment options are not mutual funds, and there is no guidance on the disclosure that pooled separate accounts, collective trusts and other similar investments should provide, Jacobson wrote.
Concentrating on Fees
The Investment Company Institute (ICI)’s Mary Podesta, Senior Counsel – Pension Regulation, echoed the notion that fee data without context could prompt some participants to get into inappropriate investments solely for their low charges. “In many plans the lowest fee option is a money market fund or other low-risk investment because these funds are the least costly to manage, but it is not appropriate for most participants to invest solely in these relatively lower return options, Podesta wrote. “Any regulatory action by the Department to improve disclosure to participants in 401(k) plans should not place undue emphasis on fees over other vital pieces of information participants need to make informed investment decisions.”
Podesta also argued that the DoL should not forget plan sponsor’s need for fee information separate from that of their participants. “Plan sponsors, as fiduciaries, must consider additional factors in hiring and supervising plan service providers and selecting investment options,” she asserted.”The Institute has consistently supported efforts to ensure plan sponsors have the detailed information they need as fiduciaries to select and monitor service providers and review the reasonableness of plan fees.”
Meanwhile, Watson Wyatt consultant Christine C. Kellogg, urged the DoL to include guidance on standard semantics to avoid what she said is often confusion over terms. “There are wide varieties of methods, and virtually every organization has a different nuance and a different name for essentially similar concepts,” she pointed out. “We have found getting a discussion off the ground for our clients usually requires spending significant initial efforts coming to common agreement on various investment and fee terms. Therefore, we think an important first step toward improving retirement plan fee disclosure would be issuing regulations with a standard set of definitions for these terms.”
Finally, Ann B. Cammack and Susan J. Luken of the American Council of Life Insurers (ACLI) joined many of their fellow correspondent is pleading with the DoL not to overburden those providing the information.
“The volume and detail of disclosure on fees and plan investments need to be considered in the context of other information that the participants receive and the relative cost of all additional mandated disclosures,” Cammack and Luken wrote.