Miller Ends Pursuit of 401(k) Fee Disclosure Legislation

June 23, 2008

House Education and Labor Chairman George Miller (D-CA) recently acknowledged that his bill regarding 401(k) fee disclosure would not clear the House this session. Miller cited opposition from the House Ways and Means Committee and the White House, as well as difficulties gaining momentum for the bill in the Senate, as reasons for abandoning the legislation.

The bill, H.R. 3185, was introduced by Rep. Miller over his concern that 401(k) plan participants are not getting sufficient information on fees and other costs related to retirement savings plans. The legislation’s proponents contended that sponsors and participants could not make informed retirement security decisions without expanded information that allowed for direct comparisons of different firms’ fee structures. The bill was intended to address concerns regarding hidden fees and limited low-cost investment options in 401(k) plans.

The legislation’s four main elements included: (1) required disclosures from service providers to plan administrators, (2) required disclosures from plan administrators to participants, (3) a mandate for inclusion of an index fund in the plan investment lineup, and (4) a directive to the Department of Labor (DOL) regarding enforcement activities.

The bill does not outline acceptable types or amounts of fees. Instead, it requires plan vendors to inform participants and sponsors of fees at frequent, predetermined intervals throughout the year. Consequently, the legislation does not significantly improve current procedures.

Those who opposed the bill argued that this legislation would only increase the amount of disclosure, not its quality, and therefore would not yield meaningful consumer benefits. Even though the bill underwent a series of amendments to address the problem of meaningful transparency, Miller was unable to win over its opponents in the Ways and Means Committee, which has jurisdiction over public plans.

While the bill focused on ERISA plans and therefore did not apply to 457 plans sponsored by ICMA-RC, it could have an impact because 457 plan providers and administrators typically follow ERISA guidelines.

For most governmental plans, the reasonableness of fees is collectively evaluated by the plan sponsor’s board members after they analyze many factors, including plan service and investment performance. Furthermore, public sector plans already have strong disclosure practices that are regulated by state and local law.

Even though Miller has set aside H. R. 3185 for now, other legislators including Ways and Means Select Revenue Subcommittee Chairman Richard Neal (D-MA) and Ways and Means Income Security Subcommittee Chairman Jim McDermott (D-WA), have begun to work on fee disclosure legislation. It is expected that one or more bills with similar objectives to those of H.R. 3185 will be introduced in the next legislative session.