The Department of Labor’s Employee Benefits Security Administration (EBSA) released Thursday its long-anticipated and groundbreaking final rule on fee disclosures for 401(k) plans.
Phyllis Borzi, Assistant Secretary of Labor for EBSA, said on a conference call with reporters that with the final rule’s release, “participants will be able to understand the dramatic effect that fees play in their overall returns.” Just a 1% difference in fees, she said, can have a dramatic impact on participants’ returns, and therefore their retirement security. This rule gives participants tools so they can comparison shop among investments, she added.
Retirement planning officials were a bit surprised by the early release of the final rules. Borzi anticipated in September that the final rule wouldn’t be out until early next year. Putnam Investments announced Wednesday its plans to offer transparent and comprehensive disclosure of fees and expenses to participants in the 401(k) plans it administered. Borzi noted that while Congress “has the final say” on 401(k) fee disclosure rules, EBSA was “hopeful our friends on the Hill will be happy with these regs.”
She mentioned specifically Sen. Tom Harkin, D-Iowa, chairman of the Health, Education, Labor, and Pensions (HELP) Committee, and Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee, who’ve been “champions” of fee disclosure. Miller’s fee disclosure legislation was part of H.R. 4213, the American Jobs and Closing Tax Loopholes Act, that passed the House on May 28 but stalled in the Senate.
Secretary of Labor Hilda Solis added on the same call that the final rule is a “major break through” that gives workers “better transparency about their retirement investments.” The rule, Solis added, “will help American workers better manage the money they contribute” to their 401(k)s. While workers are responsible for making their own investment decisions in 401(k)s, Solis said, “the law prior to this rule did not guarantee all workers received sufficient information, especially with respect to fees and expenses.”
Solis noted that approximately 72 million workers invest their money in a 401(k)-type retirement plan, and that 401(k)s currently hold nearly $3 trillion in assets. The final rule will become effective on Dec. 19, 2010, and is applicable to all covered plans for plan years beginning on or after November 1, 2011.
In a nutshell, Borzi said, the regulation required the plan administrator “to take steps to make sure that participants and beneficiaries, on a regular and periodic basis, understand their rights and responsibilities with respect to the investment of the assets in their 401(k) accounts.” To do this, she said, participants “have to be provided with sufficient information about the plan itself and the plan’s investment options,” including information about fees and