House Bill on 401(k) Fee Disclosure Introduced

By Staff Report

Apr. 24, 2009

Legislation that would require that all fees be disclosed to 401(k) plan participants in simplified form is needed, most of the panelists testified at a hearing on the legislation Wednesday, April 22.

“401(k) fee disclosure reforms are long overdue,” testified Mercer Bullard, founder of Fund Democracy Inc. of Oxford, Mississippi, a mutual fund shareholder advocacy organization. He is also assistant professor of law and the University of Mississippi in Oxford.

“Under current law, figuring out your 401(k) fees is like trying to find a needle in a haystack, except the needle has been broken into three parts and has been put into three different haystacks,” Bullard said.

Investment management fees are disclosed as a percentage of assets in plan prospectuses, administrative fees are disclosed in dollar amounts in Department of Labor Form 5500, and other account fees specific to participants are on quarterly statements, he said.

The current system amounts to an “absurd patchwork of disclosure requirements,” Bullard said.

The hearing by the House Subcommittee on Health, Employment, Labor and Pensions was held to discuss legislation introduced Tuesday by Subcommittee Chairman Robert Andrews, D-New Jersey, and House Education and Labor Committee Chairman George Miller, D-California.

The subcommittee is part of the Education and Labor Committee.

Similar legislation was approved last year by the committee, and Sen. Tom Harkin, D-Iowa, announced Wednesday that he is introducing a similar bill.

Simplifying fee disclosure would allow plan participants to make better investment choices to reduce fees, which can substantially erode retirement savings during the long-term, Miller said.

In the current volatile market, “You need to be able to hold on to every dollar possible,” he said at Wednesday’s hearing.

In addition to disclosure of all fees, the bill also would require employers to offer a low-cost index investment option in order to be protected from liability.

Most of the witnesses testifying at Wednesday’s hearing supported the legislation.

“Providing plan fiduciaries and plan participants with additional targeted information about fees and expenses will promote better investment decisions and help 401(k) plans to better deliver retirement security to the American workforce,” testified Kristi Mitchem, managing director and head of U.S. Defined Contribution at Barclays Global Investors NA of San Francisco.

Republicans warned against attributing huge losses in 401(k) accounts solely to plan fees.

“We do no one a service … to suggest the cataclysmic failure in our markets are no more a function of so-called hidden fees,” said Rep. John Kline, R-Minnesota Most of the sharp drop in 401(k) assets are due to the decline in the market, he said.

Requiring that fee disclosure be standardized and broken down into broad categories will not work for all 401(k) plans, testified Larry Goldbrum, general counsel of the SPARK Institute Inc. of Simsbury, Connecticut, which represents plan service providers.

“We urge the committee to reconsider whether requiring disclosure through a one-size-fits-all solution is appropriate,” he said.

“Not all fees fit into categories,” Goldbrum said.

Filed by Sara Hansard of Investment News, a sister publication of Workforce Management. To comment, e-mail

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