Two Ways to Legislate Slogging Along Improves Outcomes

By Mark Jr.

Jul. 7, 2009

Employers aren’t going to embrace a bill approved by a House committee on June 24 that would require increased disclosure of 401(k) fees and toughen standards for investment advice.

But the bill has gone through a legislative process that has allowed employers to make input and soften some of the edges that they thought were sharpest. The measure was first introduced in last year’s Congress, where it died when the House Education and Labor and House Ways & Means committees couldn’t agree on the language.

This year, it was reintroduced. Hearings were conducted and, on June 17, there was a subcommittee vote on the bill—the first for the House labor committee since 2006, according to panel Republicans.

In contrast, four congressional committees are rushing to cobble together health care legislation that so far looks as if it is headed for a partisan collision. The Senate Finance Committee, which has taken a more measured and inclusive approach, may yet pull health care out of the fire by forging a bipartisan agreement.

So far, there’s nothing bipartisan about the 401(k) fee bill either. It was approved by a party-line vote by the House labor committee. Each Republican amendment was shot down along party lines too.

But along the way, subtle but important changes have been made. For instance, the bill calls for service providers to disclose fees to employers and employees in four areas: plan administration and record keeping; transaction-based fees; investment management; and all other fees.

Those categories have been whittled from the 13 that were in the bill last year. In addition, the fees can be expressed in dollars or as a percentage of total assets. In both areas, the bill is a little friendlier to employers.

Another dimension of the bill deals with investment advice.

Democratic advocates say that it eliminates a misguided part of the Pension Protection Act, signed into law in 2006, that allows investment companies sponsoring a 401(k) plan to provide advice to workers who are part of the plan. The fear is that employees will be pushed into investments that are good for the plan sponsor rather than the worker.

But during the process of putting the bill together, the conflicted-advice section has been modified to give “safe harbor” to a Sun America computer model and other advice arrangements that were approved by the Department of Labor prior to passage of the pension reform legislation.

Those developments are part of “a work in progress,” as House Education and Labor Committee Chairman George Miller, D-California, calls the bill.

“Clearly, there’s been a willingness to listen and respond to some of the concerns,” said James Delaplane Jr., a partner at Davis & Harman, a consulting firm in Washington. The changes “are helpful and noted and show there’s been some productive dialogue.”

The discussions continued at the June 24 markup. Rep. Rush Holt, D-New Jersey, offered an amendment that would strike two lines from the 69-page bill that prohibited investment advice from the plan investment provider. It was the only amendment that drew bipartisan support.

“It is quite simply a step too far in the repeal of the [Pension Protection Act],” Holt said. “The legislation as it stands would deny the employee the advice that we want them to have.”

Rep. Robert Andrews, D-New Jersey, countered that advice from plan sponsors would inherently be conflicted.

“The person giving the investment advice should have only one interest in mind, and that is the best interest of the person they’re advising,” Andrews said.

That was a rare Democrat-Democrat exchange during the 3½-hour markup. There also were lively, thoughtful and sometimes funny Republican-Democratic exchanges over the issue of “unbundling” fees, which is a key part of the bill.

Rep. Howard “Buck” McKeon, R-California, likened it to a golf club price being broken down into the cost of the head, shaft and grip. He said the only number that really matters is the total price. Forcing employers to deal with a more highly calibrated number might raise the cost of providing plans.

Miller said that middle-class workers who were investing hard-earned dollars were better off having disaggregated fee information.

“We’re talking about people’s life savings,” Miller said.

That kind of back-and-forth is part of the beauty of the sausage-making on Capitol Hill. You may not see much of it in health care reform.

Three House committees have put together a bill that they introduced on June 19. Hearings began this week in each committee.

They want to have the 850-page bill ready for a floor vote before the end of July. Their Senate counterparts are on the same timetable, a breakneck pace for Capitol Hill that probably won’t allow the kind of input that is being given to the 401(k) fee bill.

The first health care hearing of the House labor committee, on June 23, was a brittle, partisan session.

Democrats said the bill would reduce costs, guarantee choice and ensure access to quality health care. Republicans called it a “one-size-fits-all approach” that would result in government domination of health care.

Rep. Tom Price, R-Georgia, asserted that a provision of the bill that requires employers to meet a certain coverage standard or be assessed an 8 percent payroll penalty would cause those who do provide coverage to drop it—even if their employees like the plan.

Earlier in the hearing, Christina Romer, chair of the White House Council of Economic Advisers, addressed how the employer mandate would affect companies providing coverage.

“The employer mandate will tell them to keep doing what they have been doing,” she said. “There will be no effect on them.”

In the rush toward a health care bill, that may be the end of the conversation. Don’t look for a subcommittee markup on this measure. There’s no time for one.

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