WASHINGTON -- The Labor Department is planning to help participants in employer-sponsored retirement plans figure out how much of their savings might be pared by fees.
The help is expected to come in the form of a booklet to educate investors in 401(k)-type retirement plans on the types of fees they might be paying for investment management and plan administration. Employers generally pick up the tab for administrative expenses, but in some cases, do pass on those costs to plan participants.
Many retirement plans also charge participants a fee for processing loans taken out against their retirement accounts.
Moreover, some insurance companies and other service providers might charge retirement plans a redemption fee, often referred to as a "back-end load," if they decide to switch providers.
The Labor Department is expected to come out with the booklet sometime this spring.
Assistant Labor Secretary Olena Berg and other department officials declined to discuss details of the booklet.
But representatives of several retirement industry groups who have met with Labor Department officials in recent months said the advice in the booklet is likely to be generic.
"What they want to do is provide participants with the tools to ask the right questions and get the right answers, so they are not being inappropriately charged," said Brian H. Graff, executive director of the American Society of Pension Actuaries, an Arlington, Va.-based trade association, who met with Labor Department officials recently.
The Labor Department might be especially interested in helping participants become aware of elements of fees that are buried in the overall investment management expenses, said Dennis Simmons, principal in the legal office of The Vanguard Group Inc., the Malvern, Pa.-based mutual fund company.
"I think the Labor Department just wants to heighten awareness of fees and the different types of fees you might see with a 401(k) plan," he said.
At the same time, the department is working on guidelines for employers in comparing costs of various mutual funds, as well as investment funds offered by insurance companies and banks when setting up retirement plans, or switching service providers.
Rather than specifying a range of fees that is acceptable, the Labor Department's pension office is likely to give employers broad guidance on how to determine exactly what they are paying for services such as daily valuation, record keeping and custody, on top of investment management fees, according to sources who have met with Labor Department officials.
The Labor Department also is expected to remind employers of their fiduciary duty to ensure any fees they are paying for managing and administering retirement plans are reasonable and appropriate.
The Labor Department's guidance to retirement plan sponsors is likely to be in the form of a checklist, telling employers how to compare the cost of each service they get from different service providers, said Chris Bowman, director of pension services at The Principal Financial Group, a Des Moines, Iowa-based insurance company that administers about 25,000 small and midsized 401(k) plans.
Mr. Bowman, who met with Labor Department officials last month, would prefer regulators ask employers to comparison shop on the basis of total costs, including expenses employers will pick up, and the package of services offered by different providers.
"We were trying to tell the Labor Department that it doesn't make sense to go to this itemized approach," he said.
The Labor Department had produced similar broad guidelines for employers some years ago on purchasing annuities, noted Stephen W. Kraus, chief pension counsel at the American Council of Life Insurance, a trade group in Washington.
Mr. Kraus is among those who have met with Labor Department officials recently.
"What we are trying to do is to educate the relevant community -- participants and plan sponsors -- so attention is paid to this question, and appropriate disclosure is made," said Sherwin Kaplan, deputy associate solicitor for the Labor Department's, plan benefits security division, who is leading an investigation of abuses in the area.
Examples of such abuses include situations where employers benefit from fees paid by the retirement plan, such as to outside accountants for auditing the plan as well as the company's financial records. Mr. Kaplan's office is also examining instances where service providers might have grossly overcharged plans.
At the same time, the Securities and Exchange Commission is planning to take a long, hard look at the relationship between mutual funds and 401(k) plans, especially full-service bundled providers that take care of everything from investing, to educating participants, handling the paperwork, and administering the plans.
The SEC is especially interested in how those services provided by one-stop providers are paid for, said Barry Barbash, director of the SEC's division of investment management, which regulates mutual fund companies.
"Is the plan sponsor paying, is the participant paying, is the manager paying, is the fund paying? We want to understand where the money is going, and who is paying for what," Mr. Barbash said.
The SEC is analyzing these money flows through prospectuses and other public documents given by mutual fund companies to plan participants, as well as through periodic examinations of mutual fund companies.
