WASHINGTON A Labor Department fee-disclosure proposal could cause a huge headache for mutual fund companies.
Previously, it was thought that only those mutual fund companies that provide record-keeping or other services to 401(k) plans would be required to track and disclose compensation arrangements with their vendors under the proposed rule.
But Labor Department officials dropped a bombshell at a Jan. 28 meeting between government officials and pension industry lobbyists. Regulators then said the rule also would affect mutual funds that provide investment-only services for a 401(k) or other ERISA plan.
Mutual fund lobbyists and attorneys claim that the regulation would impose excessive compliance costs on mutual funds, while providing little benefit to plan sponsors.
If the departments proposed take on expanded reporting sticks, this will be big doings, said Andrew Oringer, an ERISA attorney with White & Case LLP, New York. Its even theoretically possible, if the department does not move off its position, that a number of affected parties could be moved to challenge the results in court.
The scope of the disclosure being required is tediously detailed and in aggregate not very useful to the fiduciaries selecting the service providers, added A. Richard Brick Susko, an ERISA attorney with Cleary Gottlieb Steen & Hamilton, New York.
Said Michael Hadley, associate counsel-pension regulation, of the Investment Company Institute, Washington: Ultimately, the Labor Department is interested in improving fee disclosure to both plan sponsors and participants. We have long shared that goal. This is a continuing dialogue, and the Labor Department is well aware of the already extensive disclosure of mutual fund fees, both inside and outside retirement plans.
At the meeting, mutual fund industry representatives also expressed concern that the Department of Labors proposed new reporting requirements would duplicate information many funds include in their prospectuses, lobbyists said.
Gloria Della, a DOL spokeswoman, did not return calls seeking comment.
Unlike mutual fund lobbyists, those representing ERISA plan sponsors exited the closed-door session with the government regulators on a more upbeat note.
After the meeting, Im convinced that the proposed rules will provide the needed disclosure for plan sponsors, but we still have a lot of fine-tuning to do, said Ed Ferrigno, vice president of Washington affairs for the Profit Sharing/401(k) Council of America, Chicago.
Heidi Walsh, vice president and director of strategic marketing and new business development at T. Rowe Price Retirement Plan Services Inc., Baltimore, said firm officials supported fee disclosure, although she wasnt really sure what the Department of Labor had unveiled during the meeting.
We are supportive of making sure that clients understand all expenses, Ms. Walsh said.
Officials at Fidelity Investments, Boston, had no comment on the controversy but they plan to file comments at the Labor Department by Feb. 11, the due date for comments, said Jenny Engle, a Fidelity spokeswoman.
The Labor Departments proposed disclosure regulations are aimed at ensuring that defined contribution plan executives have full information about fee and compensation arrangements before sealing deals with service providers.
Ann Combs, the former assistant secretary of labor who is now principal of institutional strategic consulting for The Vanguard Group, Valley Forge, Pa., said Vanguard supports the Labor Departments disclosure efforts.
We do have questions and think there needs to be some clarification, said Ms. Combs, who did not attend the Jan. 28 meeting. This is part of the process, and we want to work with the department to make sure the disclosure is workable and meaningful.
Among the top Labor Department officials in attendance at the session, according to industry lobbyists, were Bradford P. Campbell, assistant secretary of Labor for the Employee Benefits Security Administration; Robert Doyle, director, office of regulations and interpretations; Joe Canary, deputy director of the office of regulations and interpretations; and Lou Campagna, chief of the division of fiduciary interpretations.