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Panel Hears Clashing Views On Disclosure Of 401(k) Fees

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Independent retirement plan record keepers today continued to wrestle with other industry players over the level of detail needed in plan fee reports.

The American Society of Pension Professionals & Actuaries, Arlington, Va., and its affiliated subsidiary, the Council of Independent 401(k) Recordkeepers (CIKR), urged at a hearing of the House Ways and Means Committee on retirement plan fees that Congress require all vendors, including those that provide “bundled services,” to provide information about what each service costs.

“Any inconsistent disclosure requirements based on the service provider’s business model will not allow an ‘apples to apples’ comparison of each service provided to a plan,” CIKR Chair Tommy Thomasson said on behalf of CIKR and ASPPA, according to a written version of his remarks.

CIKR represents independent plan administration firms that help plan sponsors buy services from different vendors.

David Certner, legislative counsel at AARP, Washington, also spoke in favor of un-bundling.

To give plan fiduciaries the resources they need to ensure that plan fees are reasonable, “bundled service arrangements would essentially have to be un-bundled for clearer presentation of the costs,” Certner said.

Allison Klausner, who represented the American Benefits Council, Washington, at the hearing, and several other witnesses who testified for employer and financial services groups, such as the Investment Company Institute, Washington, said Congress should leave the specifics of fee bundling and un-bundling up to the vendors and their customers.

“Artificial division of a single ‘bundled’ fee into components that are not commercially available separately at that cost serves no purpose,” Klausner testified. “Service providers should be required to disclose what services are included in the ‘bundle’ and what services can be purchased separately by the plan fiduciary.”

Un-bundled fee information is burdensome and costly to produce, Klausner said.

Every new requirement imposed on the 401(k) plan system has a cost, and participants usually bear the cost, Klausner added.

Bradford Campbell, head of the U.S. Labor Department’s Employee Benefits Security Administration, said the department will be issuing a final rule requiring additional public disclosure of retirement plan fee and expense information on Form 5500 within the next few weeks.

Within the next several months, the department will issue a proposed regulation requiring service providers to provide specific and comprehensive disclosures for plan fiduciaries, Campbell said.

The goal of the proposed disclosure regulation will be to ensure that “participants have concise, readily understandable information they can use to make informed decisions about the investment and management of their retirement accounts,” Campbell said.

“Special care must be taken to ensure that the benefits to participants and beneficiaries of any new requirement outweigh the compliance costs, given that any such costs are likely to be charged against the individual accounts of participants,” Campbell said.

In connection with this initiative, EBSA is also working with the Securities and Exchange Commission to develop a framework for disclosure of information about fees charged by financial service providers, such as mutual funds, that would be more easily understood by participants and beneficiaries “so that the disclosure requirements under our respective laws are complementary.”

Specifically, Campbell explained, “Improved mutual fund disclosure would assist plan participants and beneficiaries because a large proportion of 401(k) plan assets are invested in mutual fund shares.”

MassMutual also submitted testimony to the hearing on 401(k) fees that cautioned members not to impose disclosure rules on such instruments that have the effect of deterring employees from plan participation or employers from plan sponsorship.

At the same time, the MassMutual statement said it supported the DOL’s current three-pronged efforts to address retirement fee transparency.

The MassMutual statement added that if Congress should decide to enact new legislation dealing with the issue, MassMutual supported a bill introduced by Reps. Richard Neal, D-Mass., and John Larson, D-Conn., “that makes significant improvements to current law while avoiding the pitfalls of other recent legislative proposals.”

The statement referred to H.R. 3185, the 401(k) Fair Disclosure for Retirement Security Act recently introduced by Rep. George Miller, D-Calif., the chairman of the House Education and Labor Committee.

“We are pleased, for example, that the Neal bill steers clear of mandating that certain investments be included in every 401(k) plan.

“Such a congressional directive would usurp the role of the plan fiduciary to select investments best suited to its particular work force and would mark a radical shift in our pension law, which has historically focused on holding fiduciaries to high standards and a prudent process rather than forcing them to reach particular substantive outcomes,” the statement said.

MassMutual said improvements in existing retirement plan fee disclosure standards “can and should be made,” but should be pursued in a “balanced and practical manner.”


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