House Labor Committee Approves Bill to Expose Hidden 401(k) Fees

The House Committee on Education and Labor has approved by a vote of 29 to 17 the 401(k) Fair Disclosure and Pension Security Act (H.R. 2989), which would help workers shop around for the best retirement investment options by providing information on how much in fees is taken from their retirement accounts.

A week earlier, or on June 17, 2009, the House Subcommittee on Health, Employment, Pensions and Labor approved the landmark legislation by a 13 to 8 vote that would expose hidden 401(k) that may be eating into Americans’ retirement security.

The 401(k) Fair Disclosure for Retirement Security Act (H.R. 1984) will help workers obtain the best retirement options by requiring simple fee disclosure on the investment options contained in their employer’s 401(k) plan. Current law does not require all fees workers pay to be disclosed; and even for information that is available, it can be difficult for workers to find and evaluate.

According to the U.S. Government Accountability Office, even a seemingly small difference in the fees that workers pay can make an enormous difference in the overall size of their 401(k) account balance. A 1 percentage point difference in fees can reduce retirement benefits by nearly 20 percent.

Specifically, the bill would:

•  Ensure that workers receive basic investment information, including information on risk, return, complete fees, and investment objectives before signing-up for a plan;

•  Require that all fees – in one number – that are charged against a worker’s account to be included in the account holder’s quarterly statement;

•  Require service firms to tell employers the fees workers are charged on all investment options into four categories: administrative fees, investment management fees, transaction fees, and other fees;

•  Require 401(k) plans to offer at least one low-cost index fund to plan participants in order to receive protection against liability for participants’ investment losses;

•  Require service providers to disclose financial relationships so companies that sponsor 401(k) plans can make sure there are no conflicts of interest; and

•  Give the U.S. Department of Labor the authority to enforce new disclosure rules and fine service providers who violate them.

“When a worker spends most of their lifetime investing their hard-earned dollars into an account for their retirement and later discover that they were being charged fees that contributed to a significant loss of their nest egg, they understandably lose trust and confidence in the system,” said U.S. Rep. Rob Andrews (D-NJ), chairman of the subcommittee and cosponsor of the bill. “The lack of transparency in the 401(k) system is unacceptable and must end now.”

“I pleased that that subcommittee moved quickly on this urgent priority,” said Rep. George Miller (D-CA), chairman of the full committee and sponsor of H.R. 1984. “Americans should be entitled to clear and complete information on the fees taken from their hard-earned retirement savings.”

Miller said the issue is particularly important given that increasing numbers of American workers are relying on 401(k)s to help them pay for a decent retirement. Roughly 50 million Americans now have a 401(k)-style plan. Past surveys have shown that more than 80 percent of workers don’t know how much they are paying in fees on their retirement savings accounts.

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