House Hearings on 401(k) Fees Reveal Little Initial Congressional Interest Beyond Greater Disclosure

The first of a planned series of House Education and Labor Committee hearings March 6 focused on greater fee disclosure, but showed little initial Congressional interest in legislative reforms beyond that.

Representatives from the Government Accountability Office, the American Benefits Council, and other industry experts testified before the committee. There was little evidence of partisan splits on the issue, though Democrats were moderately more critical of existing disclosure rules than were Republican committee members who attended the session.

At the hearings, the GAO repeated its recommendation that laws and regulations be amended to require sponsors to disclose in an easy-to-understand way, fee information on each 401(k) option. It also recommended service providers disclose to plan sponsors the compensation providers receive from other service providers. GAO also wants the Department of Labor to require plan sponsors report to the agency a summary of all fees paid out of plan assets or by participants.

Several additional hearings are planned, though no dates for those hearings have been announced. The Department of Labor is expected to testify at a subsequent hearing, which is likely to focus more specifically on the 401(k) industry. While the hearings focus on 401(k) issues, ICMA-RC/457 plan providers would likely adhere to any revised disclosure or best practices guidelines.

In his opening statement at the hearing, Committee Chairman George Miller (D-CA) acknowledged that some plan fees are reasonable and necessary. At the same time, he suggested that retirement plan assets may have “leaked” unnecessarily because of excessive fees.

As he has on earlier occasions, Miller noted that even a 1 percent differential can have a significant impact on retirement savings balances. Miller also repeated his concern that plan participants don’t understand what fees they are paying because of what he called weak disclosure rules.

But the ranking Republican member of the Committee, Rep. Buck McKeon (R-CA) cautioned against overloading workers with too much or out-of-context information that could lead to what he called poor investment choices. But he also acknowledged a need for improved and simplified fee disclosure information.

Rep. Rob Andrews (R-NJ) told the committee he believed that the Committee could agree that Congress should not impede individuals’ ability to choose their own investments; participants should have access to professional investment advice; and that Congress should maximize transparency.