In addition to the 401(k) fee bill that was introduced in late July by Rep. George Miller, D-California and chairman of the House Education and Labor Committee, the Department of Labor is considering new disclosure regulations.
The focus on 401(k) charges comes in the midst of the retirement plans’ enormous popularity. Currently, the plans cover 52 million active workers and contain $3.3 trillion in assets. Fueling that growth is major pension reform passed by Congress last year, which enables companies to automatically enroll employees.
Like businesses, Democratic majorities in Congress are also turning their attention to the plans—but for a different reason.
Miller asserts that opaque fees hurt workers. He cites a recent Government Accountability Office study that shows a 1 percent difference in fees could result in a 20 percent difference in returns.
“Hidden fees are eating into the retirement savings of millions of American workers without them knowing it,” he says.
His bill would require plan administrators to list individually every service fee charged to an account and to clearly identify historical returns and fees assessed on each investment option. It also increases transparency from service providers and calls for 401(k) plans to offer at least one lower-cost, balanced index fund.
Business is wary about the potential costs of Miller’s bill. If disclosure is too onerous, “it will add to the expense of administering the plans, which ultimately gets passed on to participants,” says Bill McClain, a principal at Mercer Human Resource Consulting.
Even before legislation or regulations come to fruition, McClain says companies are trying to lower fees and communicate more clearly about 401(k) plans, which are often used to attract and retain sought-after workers.
He emphasizes that fee disclosure shouldn’t overshadow the effort to get more people to participate and increase their contributions.
“We don’t want to drown out those messages,” he says.
—Mark Schoeff Jr.