Pensions & Investments West Coast Defined Contribution Conference

Event: Pensions & Investments West Coast Defined Contribution Conference

When: October 7-9, 2007

 Where: Fairmont Hotel, San Francisco

Conference info: www.pionline.com

Day 1: October 8, 2007

Legislation to Increase 401(k) Fee Transparency Proliferates; Plan Sponsors, Service Providers Prefer Regulatory Approach

James Delaplane, a partner in the benefits group at Washington law firm Davis & Harman, continues to be the biggest draw at the twice-annual Pensions & Investments Defined Contribution Conference.

True to form, Delaplane commanded the attention of 400 attendees at the opening of the P&I meeting in San Francisco on Monday, October 8, with a crisp tour through developments in Washington regarding legislation that would increase 401(k) fee transparency.

The bill that is framing the debate is a measure written by Rep. George Miller, D-California and chairman of the House Education and Labor Committee. Miller’s bill would toughen required disclosure to participants and providers, strengthen enforcement by the Department of Labor and mandate that a "nationally recognized market-based index fund" is an option offered in a 401(k) plan.

Late last week, another piece of legislation entered the 401(k) fee fray—a bill authored by Rep. Richard Neal, D-Massachusetts and a member of the House Ways & Means Committee. Unlike the Miller bill, it would apply to all 401(k) plans, not just those that fall under federal retirement savings law.

Its disclosure requirements would be less stringent, or "granular," as Delaplane puts it. The bill would focus less on fee quantification than the Miller bill. It would also fall under the jurisdiction of the Treasury Department (read: Internal Revenue Service) rather than the DOL.

Delaplane criticized the Miller bill for taking a "very granular, line item, disaggregated approach to fees." He and other experts warn that such a policy could flood participants with too much information and scare them away from retirement savings. It also could increase costs for service providers that they then pass along to savers.

Although the 401(k) community would favor the Neal bill over the Miller legislation, the ideal route for them would be DOL regulation. Yes, they favor greater agency oversight because they have been working with DOL on new regulations regarding public disclosure as well as disclosure to plan sponsors and participants.

Delaplane predicts that DOL will issue its final 401(k) fee regulations, sometime next year, before Congress takes action on the issue. "If I were betting, I would say that the answer comes from regulation rather than from legislation," he said. "That’s probably good for us."

The reason that audience members prefer that outcome, according to Delaplane, is because establishing a 401(k) fee transparency regime in legislation is less flexible and harder to revisit than putting it in place through regulations. A bill could set in stone policy based on today’s market conditions.

"The business community and the provider community have spent a lot of time with the Department of Labor on this issue," Delaplane says.

Andrews Calls 401(k) Fee Legislation Beginning of Process, Not End

The luncheon keynote speaker on October 8 at the P&I conference was originally supposed to be Rep. George Miller, D-California and chairman of the House Education and Labor Committee. Miller’s speech was highly anticipated because he would be discussing his 401(k) fee legislation to the industry that would be directly affected.

And it would have been a skeptical audience. Earlier in the day, James Delaplane, a partner in the benefits group at Washington law firm Davis & Harman, criticized the Miller bill for being too stringent on its disclosure mandates and a threat to investor confidence.

Well, Rep. Miller sent his regrets and asked Rep. Robert Andrews, D-New Jersey and chairman of the subcommittee on pensions, to take his place. Andrews, one of Miller’s key colleagues on the panel, did stand in for the chairman—but he didn’t exactly stand with him.

Andrews’ speech could not have been delivered by Rep. Howard "Buck" McKeon, R-California and ranking member of the labor committee, but it was one that may have drawn a few "amens" from McKeon.

For instance, Andrews didn’t give Miller’s bill a big bear hug. He sort of patted it on the shoulder.

"Bills are the beginning of a legislative process, not the end," Andrews says. He described the Miller bill as "only a starting place."

He says that a bill "should not be a solution in search of a problem." Instead, "any legislation should go forward if we build the record of a need for legislation."

So far, Andrews isn’t convinced that there is systematic overcharging of 401(k) fees. "My initial reaction is there isn’t," he said.

He also expressed skepticism about mandating that an index fund always be an option in 401(k) plans—another key component of the Miller bill. "I favor investment advice, not favoritism," Andrews says.

Andrews denied that he is splitting with Miller on the 401(k) fee issue. "What he did was initiate a process," Andrews says. "We’re going to need bipartisan support. The chairman shares that view and there is no daylight [between Andrews and Miller]."

Perhaps not. But Andrews’ declining to fully embrace and defend Miller’s approach was somewhat surprising given that Andrews is a key Miller ally on the committee.

Andrews, like most people representing the industry at the conference, agreed that greater 401(k) transparency is needed. He outlined the key questions for legislation to address:

● What should be disclosed?
● To whom should it be disclosed?
● What should be disclosed as opposed to what should be made available if requested?
● Should an index fund be mandated?

Andrews, Miller, their Democratic and Republican colleagues and many, many industry lobbyists will be weighing in on those questions over the next few months in Washington.

—Mark Schoeff Jr.