The Investment Company Institute has commended the Department of Labor for its comprehensive approach to disclosure for 401(k) plans, including proposed rules that will help employers who sponsor plans "make the decisions entrusted to them under ERISA," says ICI President and CEO Paul Schott Stevens.
The DOL's proposal for plan sponsors "fills a gap in existing regulations" and should help employers understand how fees of investment products are used to compensate service providers to plans.
A 2005 survey found that in 38 percent of 401(k) plans, participating employees pay plan expenses through the fees on the investment products, including mutual funds, offered by the plan. The Labor Department's proposed regulations aim to ensure that plan fiduciaries understand the economic relationships between service providers and investment providers.
Stevens urged the DOL to make sure disclosures required by its proposed rules are workable for service providers, so that they do not create information overload for plans, especially smaller plans. For instance, he says, the department should clarify that businesses serving mutual funds, such as brokers and fund accountants, are not treated as service providers to 401(k) plans. Rather than requiring "dozens, sometimes hundreds of [fund] service providers" to detail their expenses to the plans, plan sponsors could rely upon mutual fund fees and expenses disclosed under SEC rules to fulfill their duties under ERISA to prudently select and monitor plan investments, Stevens says.
Stevens also praised the DOL for not demanding that a service provider "unbundle" investment management and administrative expenses when it offers both services. "The department is correct to focus on disclosure of real payments and not require the disclosure of artificial allocations."
Janet Levaux is the managing editor of Research; reach her at firstname.lastname@example.org.