Congressman George Miller Champions 401k Fee Disclosure

Enhanced 401k fee disclosure benefits both plan sponsors and participants. This is a first of a series of articles to explain how this new 401k fee disclosure legislation come into effect.

In 2007, Congressman George Miller (D-CA) introduced the 401k Fair Disclosure for Retirement Security Act.

On July 24, 2007 twelve organizations representing plan sponsors and plan vendors submitted a response to the Department of Labor’s (“DOL”) request for information regarding 401k fees and expenses.

The retirement plan industry response states the belief that the DOL possesses the “statutory authority and institutional expertise” to enhance fee disclosure without the need for further legislation. The response made the following recommendations:

• Changes in disclosure laws should foster simplicity, flexibility and efficiency to enhance the usefulness of disclosures to participants;
• Policymakers should recognize the distinct differences in fee information needed by fiduciaries in selecting/monitoring investments/vendors versus information required by participants in making prudent investment decisions;
• Required disclosure should be limited to expenses that may actually affect participant investment choices;
• Fee information should appear alongside other key investment information;
• Policymakers should be sensitive to additional costs new disclosure rules may impose, avoiding the inadvertent creation of additional costs to participants;
• Fee disclosure should facilitate comparisons for purposes of investment decisions;
• Participants should have access to fee and investment information at enrollment and annually thereafter; and
• Participants should receive disclosures regarding administrative and transaction charges deducted from their accounts.

Two days later U.S. Representative George Miller introduced the 401k Fair Disclosure for Retirement Security Act of 2007 (“FDRSA”).

The 401k Fair Disclosure for Retirement Security Act is intended to require and enhance 401k fee disclosure and participant education.  Among other provisions FDRSA requires:

• 401k service providers clearly disclose all potential conflicts of interest;
• Plan fee disclosures by plan administrators;
• Detailed information regarding investment strategies, risks, and returns be provided to participants when they enroll in a 401k plan; and
• At least one “lower-cost” balanced-index fund in a plan’s investment menu;
• Enhance the Department of Labor’s oversight of 401k plan fees.

Congressman George Miller brought renewed attention to 401k plan fees for both plan sponsors and participants.  Future articles in this series will examine how 401k fee disclosure legistation evolved from this point.

401k fee disclosure legislation