WASHINGTON The Labor Department has put the issue of enhanced 401(k) fee disclosure on its own agenda, a move that could take some of the wind out of the sails of a legislative threat.
The DOL will soon seek comment on ways to improve the current disclosures applicable to participant-directed individual (retirement) account plans, according to a March 6 department news release. According to the release, a proposed regulation on new disclosure requirements could be published in the Federal Register later this year.
We want to ensure workers receive meaningful fee and expense information that will help them make informed investment decisions, Bradford P. Campbell, acting assistant secretary of labor, said in the departments press release. Gloria Della, a DOL spokeswoman, declined comment on the timing of the announcement.
The announcement came a few hours after a House Education and Labor Committee hearing at which committee Chairman George Miller, D-Calif., said he was likely to propose legislation aimed at ensuring that plan sponsors and participants understand what they are paying for 401(k) fees.
Industry lobbyists would prefer that new disclosure requirements be established by the Labor Department, which they believe would be more open to industry suggestions than Congress.
Any time that you have Congress try to act, they go after it with a sledgehammer, said Bill Sweetnam, a partner at Groom Law Group, Washington, and a former benefits tax counsel at the Treasury Department. With regulations, you have a chance to comment. Many times with bills, theres not as much of a chance to influence what the bill is going to say.
The way to do it
Ed Ferrigno, vice president of Washington affairs for the Profit Sharing/401(k) Council of America, Chicago, said deferring to the Labor Department is absolutely the way to do it because you have to be careful that you do it right.
However, the Labor Departments announcement wont reduce the likelihood of legislation, said Thomas Kiley, a spokesman for Mr. Miller.
Mr. Miller scheduled the hearings because of concerns that plan participants are paying out more in 401(k) fees than they would if they were better informed about the assessments. Inaction is probably not an option for this committee, Mr. Miller said during the hearings.
Today, because of weak disclosure rules, most workers dont even know how much they are paying in fees, said Mr. Miller.
Rep. Howard McKeon, R-Calif., the committees ranking Republican, endorsed enhanced disclosure requirements, as long as he is convinced they wont add to the confusion of plan participants. We must resist the urge to overwhelm workers, Mr. McKeon said.
In testimony at the hearing, Matthew D. Hutcheson, an independent fiduciary based in Portland, Ore., said that conventional 401(k) plans pay management costs of 3% to 5% annually more than he said was reasonably necessary.
The American Benefits Council, Washington, which represents plan sponsors supported some additional disclosure but was concerned that overly onerous new regulations could add to the costs of 401(k) plans and discourage their use, said Robert G. Chambers, council chairman.