WASHINGTON, D.C. – The current economic crisis has heightened the need for legislation that will provide American workers with clear and complete information about Wall Street fees taken from their 401(k)-style accounts, witness told the Health, Employment, Labor, and Pensions Subcommittee of the House Education and Labor Committee today.
“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. “The lack of transparency in the 401(k) system is unacceptable and must end now.”
The 401(k) Fair Disclosure for Retirement Security Act (H.R. 1984), introduced yesterday by Reps. George Miller (D-CA) and Andrews, will help workers shop around for the best retirement options by requiring simple fee disclosure on the investment options contained in their employer’s 401(k) plan.
“It is an especially difficult time for our country. Families are running their budgets and cutting back just to survive including, as evidence suggests, their retirement savings,” said Miller, chairman of the full committee. “As a result, it is more important than ever that Americans are armed with simple and complete information so they can get the best bang for their retirement buck.”
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. According to the Government Accountability Office, these hidden fees can greatly reduce workers’ retirement account balances. In fact, just a 1-percentage-point in excessive fees can reduce a worker’s 401(k) account balance by as much as 20 percent or more over a career.
Created with flickrSLiDR.
“Achieving financial security in retirement is a significant challenge for most Americans,” said Kristi Mitchem, managing director and head of U.S. defined contribution plans at Barclays Global Investors. “Providing plan fiduciaries and individual plan participants with additional targeted information about fees and expenses…will promote better investment decisions and help 401(k) plans to better deliver retirement security for American workers.
The legislation would require financial service providers to disclose all the costs and fees associated with each investment option to both employers who sponsor the 401(k) plan and employees who direct choose investments.
“The retirement security of employees is completely dependent upon the business owner’s choice of retirement plan service providers,” said Julian Onorato, CEO of ExpertPlan, Inc. “If the fees are unnecessarily high, the workers’ retirement income will be severely impacted. It is imperative that the business owner have the best information to make the best choice.”
H.R. 1984 would also require service providers to disclose any financial relationships or potential conflicts of interest to plan sponsors.
“Plan sponsors must understand the incentives that may exist for service providers to encourage participant behaviors that may not be in their best interest because they do not contribute to great retirement security,” said Alison Borland, retirement strategy leader of Hewitt Associates LLC, a company that advises employers on retirement plans. “Identifying these potential conflicts of interest requires more detailed disclosure than is available today.”
The 401(k) Fair Disclosure for Retirement Security Act would also require plans to offer at least one low-cost index fund that tracks a broad market index to plan participants in order to receive protection against liability for participants’ investment losses. Because index funds are not actively managed, they carry lower costs and generally outperform the vast majority of other investment options over time.
“The 401(k) Fee Disclosure Act takes the long overdue step of prohibiting pension plans from limiting investment options to actively managed portfolios and thereby forcing participants to pay higher fees and assume active management risk,” said Mercer E. Bullard, founder of the investor rights group Fund Democracy and assistant professor of law at the University of Mississippi. “It is widely accepted that actively managed funds cannot, as a group, outperform the marketplace after taking fees into account.”
For more information on the 401(k) Fair Disclosure for Retirement Security Act (H.R. 1984), click here.
The 401(k) Fair Disclosure for Retirement Security Act (H.R. 1984), introduced yesterday by Reps. George Miller (D-CA) and Andrews, will help workers shop around for the best retirement options by requiring simple fee disclosure on the investment options contained in their employer’s 401(k) plan.
“It is an especially difficult time for our country. Families are running their budgets and cutting back just to survive including, as evidence suggests, their retirement savings,” said Miller, chairman of the full committee. “As a result, it is more important than ever that Americans are armed with simple and complete information so they can get the best bang for their retirement buck.”
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. According to the Government Accountability Office, these hidden fees can greatly reduce workers’ retirement account balances. In fact, just a 1-percentage-point in excessive fees can reduce a worker’s 401(k) account balance by as much as 20 percent or more over a career.
Created with flickrSLiDR.
“Achieving financial security in retirement is a significant challenge for most Americans,” said Kristi Mitchem, managing director and head of U.S. defined contribution plans at Barclays Global Investors. “Providing plan fiduciaries and individual plan participants with additional targeted information about fees and expenses…will promote better investment decisions and help 401(k) plans to better deliver retirement security for American workers.
The legislation would require financial service providers to disclose all the costs and fees associated with each investment option to both employers who sponsor the 401(k) plan and employees who direct choose investments.
“The retirement security of employees is completely dependent upon the business owner’s choice of retirement plan service providers,” said Julian Onorato, CEO of ExpertPlan, Inc. “If the fees are unnecessarily high, the workers’ retirement income will be severely impacted. It is imperative that the business owner have the best information to make the best choice.”
H.R. 1984 would also require service providers to disclose any financial relationships or potential conflicts of interest to plan sponsors.
“Plan sponsors must understand the incentives that may exist for service providers to encourage participant behaviors that may not be in their best interest because they do not contribute to great retirement security,” said Alison Borland, retirement strategy leader of Hewitt Associates LLC, a company that advises employers on retirement plans. “Identifying these potential conflicts of interest requires more detailed disclosure than is available today.”
The 401(k) Fair Disclosure for Retirement Security Act would also require plans to offer at least one low-cost index fund that tracks a broad market index to plan participants in order to receive protection against liability for participants’ investment losses. Because index funds are not actively managed, they carry lower costs and generally outperform the vast majority of other investment options over time.
“The 401(k) Fee Disclosure Act takes the long overdue step of prohibiting pension plans from limiting investment options to actively managed portfolios and thereby forcing participants to pay higher fees and assume active management risk,” said Mercer E. Bullard, founder of the investor rights group Fund Democracy and assistant professor of law at the University of Mississippi. “It is widely accepted that actively managed funds cannot, as a group, outperform the marketplace after taking fees into account.”
For more information on the 401(k) Fair Disclosure for Retirement Security Act (H.R. 1984), click here.
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