Representatives for big retirement services vendors and other organizations with an interest in 401(k) plans clashed Wednesday at a hearing on proposed plan fee disclosure rules.
Larry Goldbrum, general counsel at the SPARK Institute, Simsbury, Conn., a group that represents large retirement services providers, asked members of Congress to think about costs as well as benefits when writing new plan fee disclosure rules.
Otherwise, the effort to improve disclosure “will ultimately increase the cost” of offering a defined contribution retirement plan, Goldbrum said at the hearing, which was organized by the House Education and Labor Committee’s Health, Employment, Labor and Pensions Subcommittee.
Witnesses who supported efforts to require vendors to “break out” fees for “bundled” services,” rather than simply reporting the total, included Alison Borland, a retirement specialist in the Nashville, Tenn., office of Hewitt Associates L.L.C., and Julian Onorato, chief executive of ExpertPlan Inc., Windsor, N.J., who spoke for American Society of Pension Professionals, Arlington.
“Plan fiduciaries cannot fulfill their obligations without clear fee disclosures from service providers that break out fees for various services,” Borland said.
Hewitt has found that simply unbundling fees helped one employer cut plan costs to 0.16% of plan assets, from 0.30%, Borland said.
Separate disclosure of investment management and administration fees is especially important, Borland said.
Onorato, who also spoke for two ASPPA affiliates, the Council of Independent Recordkeepers and the National Association of Independent Retirement Plan Advisors, said the large vendors want to report a single fee for bundled services for competitive reasons.
“They want to be able to tell business owners that they can offer retirement services for free,” Onorato said. “Of course, there is no such thing as a free lunch, and there’s no such thing as a free 401(k) plan.”
Rep. Robert Andrews, D-N.J., the HELP subcommittee chairman, has cosponsored H.R. 1984, the 401(k) Fair Disclosure for Retirement Security Act of 2009, with Rep. George Miller, D-Calif., the chairman of the full committee.
ASPPA supports the bill’s approach to disclosure, Onorato said.
ASPPA would like to see the bill’s author to increase the size limit for “small plans” to 100 participants, from 25 participants, Onorato said.
Robert Chambers, chairman of the American Benefits Council, Washington, said he would like to see the authors address employers’ liability concerns.
In the past few years, “we have seen significant growth in plan fee litigation involving defined contribution plans,” Chambers said.
Because the cost of defending against any suit that survives early “motions to strike” is so high, some lawyers bring suits that are just strong enough to survive early motions to dismiss, in an effort to force employers to agree to costly settlements, Chambers reported.
The authors of H.R. 1984 should make sure that employers have no liability if they simply report information provided by vendors that turns out to be inaccurate, and they should protect employers against suits resulting from relatively minor disclosure errors, Chambers said.
Goldbrum questioned a section of H.R. 1984 that strongly encourages employers to include index funds in their plans.
“We’ve all been learning from painful experience that past performance is no guarantee of future results,” Goldbrum said.