Members of the House Education and Labor Committee voted 25-19 Wednesday to approve H.R. 3185, a bill that would increase 401(k) plan fee disclosure requirements.
The bill, which would create the 401(k) Fair Disclosure for Retirement Security Act, was introduced by Rep. George Miller, D-Calif., chairman of the Education and Labor Committee.
The bill would require:
- Plan service providers and plan administrators to disclose fees and to provide separate information about administrative fees, investment management fees, transaction fees, and other fees.
- Plan service providers to disclose any financial relationships, to avoid conflicts of interest.
- Plans to offer participants at least one low-cost index fund.
“For too long, companies in the financial services industry have maintained a stranglehold on retirement savings that they didn’t earn and that don’t belong to them,” Miller said at the bill markup. “The purpose of this legislation is to take these hard-earned savings away from the special interests and return them to their rightful place – the retirement accounts of American workers. Workers are entitled to clear and complete information about their own savings.”
The American Society of Pension Professionals & Actuaries, Arlington, Va., and a sister group, Council of Independent 401(k) Recordkeepers, have pushed for requiring plan service providers to give detailed reports, in an effort to put providers of bundled and a la carte services on an equal footing.
The American Council of Life, Washington, and other groups that represent life insurers, mutual fund companies, banks and other providers of bundled services have argued that overly detailed disclosure requirements would increase plan costs without doing much to improve service.
“Congress should not require providers to develop artificial numbers, as they are not useful to plan fiduciaries,” representatives for the ACLI and several other financial services groups have written in a letter to members of the Education and Labor Committee. “As long as plan fiduciaries can compare the services and total costs of the different options that are available to the plan, they can fulfill their [duties under the Employee Retirement Income Security Act] to enter into reasonable service arrangements.”
In addition, no need exists for the proposed index fund mandate, the trade group representatives write in the letter.
Federal law “places the obligation to determine plan investments on plan fiduciaries and holds them to strict standards in exercising their judgment,” the trade group reps write. “There is no evidence that plan fiduciaries are not exercising their obligations properly. As a matter of policy, Congress should not substitute its views for fiduciary judgments.”
Rep. Howard McKeon, R-Calif., the highest ranking Republican on the Education and Labor Committee, noted during the bill markup that H.R. 3185 would require service providers to disclose the fees related to any single service provided as part of a “bundled” service contract, even if that service was not available on an individual basis.
“Providers are, in essence, being asked to fabricate information for the sake of disclosure, even when that disclosure has no meaningful purpose,” McKeon said.
At an automobile dealer showroom, “you don’t get a price for the engine, the brakes or the gearshift, because they are not for sale outside of the car,” McKeon said.
McKeon also expressed concern about the index fund provision.
The provision could lead to the perception that the federal government has given the product a “rubber stamp” endorsement, McKeon said.
Miller said he sees the index fund mandate as a means of providing all workers with a benefit already enjoyed by a majority of workers.
A 2006 study that found that 72% of 401(k) plans already include an index fund option, Miller said.
“There’s no reason why we can’t make index funds available to all workers,” Miller said.