House Panel OKs 401(k) Fee Disclosure, Defined-Benefit Plan Funding Relief

By Staff Report

Jun. 24, 2009

Legislation approved Wednesday, June 24, by the House Education and Labor Committee would require improved disclosure of fees and other financial information to 401(k) and other defined-contribution plan participants, as well as provide some modest funding relief for defined-benefit pension plans.

The defined-benefit plan funding relief may be only the first of additional changes, with committee Chairman George Miller, D-California, describing the funding relief provisions as a “work in progress.”

Under the measure, H.R. 2989, approved on a 29-17 vote, service providers would have to disclose to employers all fees assessed against a participant’s account, with those fees broken down into four categories: administrative, investment management, transaction and other fees.

That would change the practice of some service providers, especially mutual funds, that include fees, such as record keeping, in the expense ratio of the investment funds they provide.

The proposal also would mandate quarterly statements be provided to participants that detail contributions, earnings, account balances and all fees taken out of their accounts.

In addition, the measure includes a provision that would effectively require defined-contribution plans to include at least one market index fund as an investment option.

The measure also would delay the effective date of regulations mandated under a 2006 law that toughened funding requirements. Under current law, the rules can be effective as soon as July 1. The amendments to be added to the bill would delay the effective date until January 1, 2010, at the earliest.

Until then, employers could make a good-faith interpretation of the law’s funding requirements.

In addition, employers would be given more flexibility in choosing an interest-rate methodology to value pension plan liabilities in 2009 and 2010.

An amendment proposed by Rep. Brett Guthrie, R-Kentucky, and approved by the committee on a voice vote would require employers to only pay interest on 2008 losses in 2009 and 2010, but the seven-year amortization of losses—set under the 2006 funding reform law—would not begin until 2011.

The funding relief provisions are “good positive changes,” with a possibility that legislators will consider additional relief proposals, said Kyle Brown, an attorney with Watson Wyatt Worldwide in Arlington, Virginia.

On the other hand, more employers would be required to report plan actuarial and financial information to the Pension Benefit Guaranty Corp. Under current law, only plans that are less than 80 percent funded have to report this information to the PBGC.

The legislation would change that requirement so reporting such information would be triggered if plan underfunding exceeded $50 million.

Such a change is needed, according to a committee summary, “since large plans that are more than 80 percent funded can still be underfunded by hundreds of millions of dollars, the PBGC is not getting information on many underfunded plans.”

It isn’t clear yet if the measure will now go straight to the full House or whether the Ways and Means Committee, which also has jurisdiction on pension issues, will take up the bill.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail

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