Congress Goes After Retirement Plan Fees
Fees associated with administering retirement benefit plans are at the top of this year’s federal government policy agenda because Miller—who officially stepped in as chairman of the influential House Education and Labor Committee on January 4—is concerned that excessive charges might be cheating plan participants of investment returns for their retirements.
“You seem to have a lot of people who in some cases appear to be somewhat fast and loose with other people’s money,” Miller said in an interview with Pensions & Investments. “I think we have an obligation to ask: Are the employees getting a fair shake here?”
Benefits industry officials say the Labor Department this year is also expected to establish sanctioned default investment options for defined-contribution plans with automatic enrollment and set ground rules for financial firms offering investment advice to 401(k) plan participants.
Industry fees have been under Labor Department scrutiny for the past several years, and the department has signaled it favors some additional disclosure.
From his new bully pulpit as chairman of the key congressional committee that oversees the Department of Labor, Miller is expected to hold the department’s feet to the fire on the issue.
Labor Department spokesman Peter Hong declined comment.
How much information
As it stands, the Labor Department is considering an initiative aimed at spelling out how much fee information sponsors should be required to disclose to plan participants and how that information should be provided.
A November 30 report by the General Accountability Office requested by Miller recommends that legislation requiring plan sponsors to disclose fee information to participants in a way that would allow them to compare their plan investment options. The agency also recommended legislation requiring 401(k) service providers to disclose to plan sponsors all compensation received from other service providers, and that the Department of Labor require plan sponsors to provide a summary of all fees that are paid out of plan assets or by participants.
In the interview, Miller, who has already called for hearings on 401(k) plan fees, said he had yet to decide whether the legislation will fully address his concerns. But he says Department of Labor representatives will be summoned to Capitol Hill to explain what they’re doing about fees.
Miller also says he hoped that adding transparency to the fees assessed for plan investment options, along with regulations ensuring the fee information is useful to participants, will put a damper on excessive fees.
“Many people work very, very hard to accumulate savings and retirement resources that they think are necessary, and they should not be victimized by those they entrust their money to,” he says.
At least some industry lobbyists are skeptical about how much additional fee information can save plan participants—on the argument that the competition among 401(k) plan money managers should keep the level of fees in check.
“This [excessive fees] is not a widespread problem,” says Brian H. Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries in
Added Ed Ferrigno, vice president of
Miller made clear he believes the focus should be on the impact that fees have on the retirement savings of plan participants, keeping in mind that what he sees as the affluent lifestyles of many in the financial services industries is often supported by fees drawn from the retirement savings of plan participants.
“I think you’ve got to ask yourself: What’s the fiduciary duty to people in middle-class families who are busting their ass to try to provide for their retirement? What’s the fiduciary responsibility to people who are managing their money?” Miller says.
“I find with interest as an avid reader of business journals that even the big guys squabble over fees. And you know, a lot of times it’s the old business with when the big guys are fighting, the grass gets trampled,” Miller adds.
Miller voted against the Pension Protection Act of 2006, the most comprehensive overhaul of the nation’s benefits law since the Employee Retirement Income Security Act of 1974. He issued a news release Aug. 17—the day President Bush signed the bill—saying the new law put “pension plans at greater risk of being cut or dumped entirely.” But in the interview, Miller said he has no immediate plans to revisit the bill with new legislation.
“I’m not so tied to the bill,” he says. “For the moment, that’s yesterday’s newspaper.
“There’s some school of thought that that’s what in fact the bill will do: It will make it easier to get away from defined-benefit plans,” Miller added. “I think we have an obligation to try to run ahead of the curve and see what’s down the road, and if that [moving away from defined-benefit plans] is going to continue to happen, where is it that these people are going to make up the resources necessary for their retirement?”
Indexed vs. managed
One question posed by Miller is whether plan participants would be better off with their money invested in lower-cost indexed accounts than in higher-cost managed accounts. “We see the number of people who can’t beat the Street, but they’re getting big fees for trying,” he says. “Is that really where people’s money should be?”
But at the same time, he says participants should be able to call the tune on how their money is invested.
“People are still entitled to make bad decisions,” he says. “But even a bad decision should be an informed decision.”
Miller also says he had yet to decide whether to support an initiative by money managers to modify a provision in the Pension Protection Act that allows money managers to give advice to 401(k) plan participants on a plan’s investment options, including the manager’s own products.
Under the so-called “fee-leveling” provision at issue, financial firms offering advice are required to charge a single flat fee to participants, regardless of what investment options are chosen. That, according to money managers, makes the regulatory relief effectively useless to them because they charge higher fees for some strategies than they do for others.
“I don’t know yet,” Miller says on whether he favors eliminating the fee-leveling provision. At the same time, he says that cost of the advice, like the fees and commissions associated with administering a plan, come from the retirement funds.
“I think transparency becomes very, very important here,” Miller says.
According to the Center for Responsive Politics, a nonprofit Washington research group that tracks money in politics, top contributors to Miller’s 2006 re-election campaign included the AFL-CIO, the Air Line Pilots Association, the National Education Association and the International Brotherhood of Electrical Workers—groups that traditionally support the interests of employees on retirement-related issues.
—Doug Halonen is a reporter for Workforce Management
sister publication Pensions & Investments, where this story originally appeared.