Retirement group to propose changes to 401(k) disclosure bill

An industry association that represents the interests of retirement plan service providers this week will suggest modifications to proposed legislation that would require the industry to break out 401(k) fees on investors' statements.

The Spark Institute will push for a less detailed version of a bill introduced last month by House Education and Labor Committee Chairman George Miller, D-Calif.

For example, his bill calls for showing in actual dollars the cost to plan participants for their specific investments.

The Spark Institute, however, will suggest providing investors with a list of the total expense ratios of the various investment options available in the plan, along with the dollar cost based on a hypothetical $1,000 investment.

As proposed, Mr. Miller's bill “sets up a rigid structure that is not flexible enough for all the different service models and all the different investment products that are out there,” said Larry Goldbrum, general counsel for The Spark Institute, which is based in Simsbury, Conn.

Mr. Miller's bill would require mutual fund companies, brokerage firms and insurers to provide plan sponsors a breakdown of the administrative, investment management and transaction fees charged to investors. Any other fees would also have to be disclosed under the proposal.

While those fees are easily broken out by mutual funds, they are not as readily accessible for insurance products, Mr. Goldbrum said.

Fees for many 401(k) investment products “just don't fit neatly into the categories that are laid out in the bill,” he added.

Rather than require the disclosure of fees that fall within specific categories, The Spark Institute is lobbying for more general disclosure of direct and indirect fees charged to retirement plan participants, Mr. Goldbrum said.

Mr. Miller will “have to wait to see what their criticism is,” said Aaron Albright, spokesman for the Education and Labor Committee. “We provide an enormous amount of flexibility for all fees to be disclosed in four simple, easy categories,” Mr. Albright said.

Mr. Miller's bill is likely to be approved this year by the House of Representatives, said Brian Graff, executive director of the American Society of Pension Professionals and Actuaries in Arlington, Va., which represents smaller third-party plan administrators.

ASPPA supports the bill as it is written.

In the last Congress, similar legislation was approved by the House Education and Labor Committee, but not by the full House of Representatives.

NEW CLIMATE

“It's a much different climate this year,” Mr. Graff said.

In April, a documentary aired on CBS News' “60 Minutes” that was critical of “hidden” 401(k) fees that significantly dilute the amount of retirement savings in the plans.

“There's a lot more attention and focus on this area,” Mr. Graff said. “Congress is sensitive to the concerns of the American people about what's going on in the financial services sector. It's hard to argue against transparency.”

Supporters of Mr. Miller's bill argue that fees need to be disclosed in the same categories so that plan sponsors can compare them and negotiate better with plan providers.

Fees for plan participants also need to be simplified so that participants can easily understand them and make better-informed decisions about their investment choices, they argue.

Rep. Richard Neal, D-Mass., chairman of the Select Revenue Measures Subcommittee of the House Ways and Means Committee, is also likely to introduce a 401(k) fee disclosure bill. Mr. Miller's bill would have to be merged with any legislation that would come out of the Ways and Means Committee.

Legislation introduced last year by Mr. Neal would have required less detailed fee disclosures than Mr. Miller's bill. A chief difference be-tween the two bills is that Mr. Miller's stipulates that all 401(k) plans must offer a low-fee index-type of investment option in order to protect plan sponsors from liability. Mr. Neal's bill did not contain that provision.

Legislation similar to Mr. Miller's has been introduced in the Senate by Sens. Herb Kohl, D-Wis., chairman of the Senate Special Committee on Aging, and Tom Harkin, D-Iowa.

E-mail Sara Hansard at [email protected].