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Practice Management > Compensation and Fees

Improving 401(k) Fee Disclosure On Fast Track

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The Department of Labor making swift improvements in regulations dealing with disclosure of the cost of managing 401(k) and other defined contribution accounts to plan members is the likely result of a hearing on the issue last week by the House Education and Labor Committee.

Within hours of the committee’s hearing, the DOL issued a statement saying that “improving 401(k) fee disclosure is a top priority of the Labor Department.”

Acting Assistant Secretary of LaborBradford P. Campbell, said in the statement that the DOL is currently working on “several regulatory initiatives” focused on improving the transparency of fee and expense information for participants and plan fiduciaries.

Specifically, he said, the agency will lay the foundation for a regulation later this year by publishing a request for information in The Federal Register “soon,” inviting suggestions from the public to improve the current disclosures applicable to participant-directed individual account plans.

Second, Campbell said, the agency is expanding the public disclosure of fee and expense information required in Form 5500 by acting “within the new few months” on a final rule based on proposed changes published for comment last July.

The proposed changes would require “significant improvements in transparency of plan-related fees and expenses,” he said. The proposed changes will make it easier for regulators and plan officials to ensure workers’ interests are protected, he said.

Campbell also said the DOL plans to publish a proposed regulation in the springrequiring service providers to disclose to plan fiduciaries information concerning the providers’ direct and indirect compensation, fees, and other financial arrangements.

“This will ensure fiduciaries have theinformation needed to assess both the reasonableness of the fees andpotential conflicts of interest,” he said.

Campbell’s comments clearly were a direct fallout from the hearing, where representatives of the pension management industry, government officials and members of the House Education and Labor Committee all acknowledged that improved disclosure of the cost of managing 401(k) and other defined contribution accounts is needed.

However, all of the experts and most members of the committee agreed that the devil is in the details, and voiced concern that any legislation or other action should be approached cautiously because of the potential to make the plans even more costly and the information more difficult for plan members to understand.

Rep. George Miller, D-Cal., the committee chairman, said during the hearing that “doing nothing is not an option,” and raised the “likelihood” that legislation dealing with the issue could be introduced.

However, Miller declined to be pinned down when asked later about his plans, and conceded that the likely next step in congressional action on the issue would be soliciting DOL’s views on how transparency can be improved.

The impetus for those comments came in testimony at the hearing from Barbara Bovbjerg, director of the Health, Education and Human Services Division of the Government Accountability Office.

In his comments, Miller said the testimony “at today’s hearing offered clear evidence of the need for better disclosure of fees to workers who have 401(k) or similar savings plans and to the companies that sponsor them.”

Rep. Howard McKeon, R-Cal., ranking minority member, added that “our first principle must be to do no harm.”

He said, “The pension bill we passed last year took years to get ready for the President’s signature, and for good reason.

“We did not want to do anything that would force employers out of the voluntary retirement savings benefit system, nor did we want to take any action that would have discouraged retirement savings or investment,” McKeon added.

Representing industry, Robert Chambers, a partner at Helms, Mullis & Wicker in Charlotte, N.C., said as the hearing concluded, “Everyone agrees there needs to be enhanced disclosure of plan fees.” He was representing the American Benefits Council at the hearing.

“But fee disclosure must be addressed in a way that does not undermine participant confidence in the retirement fee system and does not create new costs that have the counterproductive effect of increasing fees borne by participants,” he said.

Chambers said he felt the best approach to the fee issue is through simple, clear disclosures that enable plan sponsors and participants to understand and compare fees in the context of the services and benefits being offered under the plan.”

In a statement issued after the hearing, Frank Keating, president and CEO of the American Council of Life Insurers, said, “The life insurance industry has been actively involved with legislative and executive branch policy makers over the years to improve disclosure of plan fees to sponsors and participants.

“We believe that efforts to provide sponsors with the information needed to evaluate plan features must continue,” Keating said, noting that plan sponsors must have tools available to determine whether a particular product meets their needs. “We look forward to working with federal policymakers and plan sponsors to continue this important dialogue.”