Experts Pin Hopes on Labor Department for Retirement Plan Fee Disclosure Regulations

September 16, 2009

Industry experts are hoping the Department of Labor pre-empts Congress in issuing new regulations mandating increased disclosures for retirement plan fees.

Fee disclosure has become a hot-button issue in the retirement services industry during the past several months, particularly as many plan participants have lost much of their retirement savings because of the recession. Specifically, members of Congress and the Department of Labor want to increase the transparency of what fees employers pay providers and what responsibilities fall to participants.

In comments at the American Council of Life Insurers’ meeting September 11 in Washington, Phyllis C. Borzi, the assistant secretary of the Labor Department’s Employee Benefits Security Administration, said the agency was focusing on the proposals the previous administration left pending including a fee disclosure proposal, people who attended the conference said.

Meanwhile, members of Congress have introduced their own bills.

In June, the House Education and Labor Committee approved the 401(k) Fair Disclosure and Pension Security Act, which among other things requires 401(k) plans to disclose how much plan participants are paying in fees; mandates that plan administrators offer at least one low-cost index fund in their plans; and requires that companies offer investment advice to plan participants.

Industry experts welcome the widespread interest but worry that many of the legislative proposals are mired in politics.

“The legislative approach has gotten off track from the central theme of the bill and instead has resulted in a turf war between bundled and unbundled providers,” says Ed Ferrigno, vice president, Washington affairs, for the Profit Sharing/401k Council of America. “You have service providers dominating the debate.”

Also, many observers believe that regulations from the Department of Labor would be more practical and easier to follow.

“The Hill has a lot of political axes to grind, whereas the Department of Labor has always been involved in these processes and tends to be very practical,” said Rick Menson, a partner in the Atlanta office of the law firm of McGuireWoods. “The question is who is going to be first—the Hill or the Department of Labor?”

Regulations from the Department of Labor also are preferable to legislation because they allow for a comment period from the industry, said Lynn Dudley, senior vice president of policy for the American Benefits Council, who attended the ACLI meeting.

“We can fret over the timing of things and do so over an open forum so that we come out with something that is workable,” Dudley said. “The regulatory proposals in the agencies work very well because we have a lot of career staff; I think this adds some consistency so there is a sense of direction that helps the process.”

The American Benefits Council is concerned that employers might get stuck in a back-and-forth of legislative proposals from Congress and regulations coming from the Department of Labor, Dudley said.

“We think the agency is sensitive to our concern that if regulations come out, we have to comply with that, and then if legislation comes out, we have to comply with that,” she says.

While the House Education and Labor Committee welcomes guidance from the Department of Labor, it still feels that legislation on the issue is necessary, spokesman Aaron Albright said.

“There are certain things that the Department of Labor is doing that would be good steps, but we think Congress also has an opportunity to ensure that these reforms are codified into law,” he said.

Gloria Della, a spokeswoman for the Department of Labor, didn’t provide immediate comment.

—Jessica Marquez

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