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.
Significantly, the measure would also force 401(k)-style plans to include at least one lower-cost, balanced index fund in their investment lineup. A discussion panel at PLANSPONSOR’s recent Plan Designs conference in Chicago said Miller was not only focusing on fee disclosure and conflicts-of-interest issues, but also on the revamping of permitted retirement plan investments in large measure restricted to traditionally less expensive index offerings (See PD2007: CA Democrat Seen as Important Pension Player ).
Discussion panel member Steve Saxon told the audience that a move by Miller to mandate low-fee funds would be something they would need to watch out for. “If it gets through,” Saxon , a Washington Employee Retirement Income Security Act attorney, told the Chicago audience, “that would be a big deal.”
Miller’s Thursday statement 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.
The issue of excessive and undisclosed 401(k) fees has come to the forefront since a number of lawsuits were filed by St. Louis law firm Schlichter, Bogard & Denton last year (See PD2007: 401(k) Fee Suits: Fending Off The Devil ).
Written in the format of a letter to Miller, chairman of the House Committee on Education and the Workforce, a recent Government Accountability Office report 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 (See GAO Urges Congress to Consider 401(k) Plan Fee Disclosure ).
The report pointed out 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.
“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.