House Education and Labor Committee Chairman George Miller, D-Calif., is expected to remove a controversial requirement from his 401(k) bill that a low-cost
index fund be included in all such plans, said an industry official.
The revised legislation would allow the inclusion of such investments to be optional, said the official, who asked not to be identified.
Mr. Miller, who held a hearing Oct. 4 on the 401(k) Fair Disclosure for Retirement Security Act of 2007, is expected to come out with a revised proposal by the end of the month, the official said.
In addition to the
index fund requirement, the bill introduced in July would require detailed disclosures of fees and potential conflicts of interest to plan participants and to plan sponsors.
The Bush administration and financial services firms that offer 401(k) plans oppose requiring that plans make particular types of investments available.
"This is a departure from how [the Employee Retirement Income Security Act of 1974] has traditionally worked and impinges on the ability of participants and employers together to decide what's a mutually appropriate plan environment," Assistant Secretary of Labor Bradford Campbell said at the Oct. 4 hearing.
The Department of Labor is expected to issue a final regulation within the next few weeks concerning disclosures that must be made in Form 5500 reports, annual reports that pension plans must file with federal regulators, he said.
In addition, the Labor Department is expected to issue a proposal in the next several months about what disclosures must be made by plan administrators to companies that sponsor the plans. A proposal on what disclosures should be made to plan participants will be issued this winter, Mr. Campbell testified.
He said Labor Department regulatory changes, not new laws, are the best way to resolve those issues.
In Mr. Miller's testimony, he said "hidden" 401(k) fees can cut deeply into workers' retirement savings, and many workers are unaware of their impact.
"Under current law, weak disclosure requirements mean that workers lack crucial information about fees they are paying," he said.
Citing "a dizzying array of fees," including revenue-sharing fees, wrap fees, surrender charges and 12(b)-1 fees, Mr. Miller concluded, "I'm sure that many workers, if they knew about these fees, would not be willing to pay them."
Because employees are dependent on whatever plans are selected by employers, disclosures made to plan sponsors are critical, said Tommy Thomasson, president of DailyAccess Corp. in Mobile, Ala., which administers thousands of small and midsize 401(k) plans throughout the country. He testified at the hearing on behalf of the American Society of Pension Professionals and Actuaries, which is based in Arlington, Va.
"If the fees are unnecessarily high, the worker will ultimately pay the price," Mr. Thomasson said.
The Labor Department's proposal would require more disclosures to plan sponsors from "un-bundled" service providers, which aren't affiliated with investment managers, but would exempt "bundled" providers from the same disclosures, he said.
"We do not believe that any ex-emption for a specific business model is in the best interests of plan sponsors and their participants," he said.
Without requirements for uniform disclosures from both independent 401(k) administrators and integrated financial services companies, plan sponsors won't be able to properly evaluate competing pro-vider services and fees, he said.
Too many 401(k) plans fail to provide retirement security for participants because of inadequate contributions, low investment returns, high fees and the lack of a distribution strategy in retirement, Matthew Scanlan, managing director and head of institutional business in the Americas for
Barclays Global Investors of San Francisco, told the committee.
Sara Hansard can be reached at [email protected].
