Neal Bill Would Require Expanded Disclosure to Retirement Plan Participants

January 16, 2008

Rep. Richard Neal (D-MA) has introduced a bill that would require employers to provide employees with two separate disclosures regarding plan investments and fees - at enrollment and annually. Rep. John Larson (D-CT) co-sponsored the bill.

The Defined Contribution Plan Fee Transparency Act of 2007 (HR 3765) would require that before participants invest in a plan, an employer must disclose for each of the plan’s investments alternatives the objective and investment manager, its risk and return characteristics, and its historic rates of return.

The bill would also require employers to disclose the asset-based fees for each investment alternative, whether such fees pay for services beyond investment management (such as plan administration) and whether there are additional charges such as redemption fees. The bill would also require employers to annually provide participants with information about the investments selected and any fees applicable to their accounts.

The bill would impose these new disclosure requirements on all tax-preferred, participant-directed defined contribution plans, including 401(k) plans, 403(b) plans and governmental 457(b) plans.

New Expanded Disclosures by Retirement Plan Service Providers

The bill would also require service providers to give fee information to plan administrators in advance of a contract for plan services. Providers would have to provide the employer with an estimate of total fees, as well as a detailed and itemized list of all the services to be provided under the contract.

Providers would also have to disclose whether they expect to receive payments from third parties in connection with providing services to the plan. Plan service providers would have to provide this detailed disclosure statement to employers every year the contract is in place and following any material modification of the contract. Employers would have to make such statements available to plan participants.

The bill has been referred to the House Ways and Means Committee, but no hearings have been scheduled.