Transparency Urged for 401(k) Fees
Labor Dept. Regulation Would Put Plans' Costs in Writing

By Jesse J. Holland
Associated Press
Thursday, December 13, 2007

Companies selling 401(k) services should be forced to disclose in writing all the fees and expenses that can drain money from workers' retirement plans before businesses trust them with their employees' money, the Bush administration proposed yesterday.

The Labor Department's proposed regulation is meant to "foster fair, competitive and transparent prices for services as well as combat excessive or hidden plan fees," said Labor Secretary Elaine L. Chao.

Under the proposed regulation, companies offering 401(k) and other employee benefit plans would have to submit in writing all services their plan offers and all direct and indirect compensation they get from the plan. Plan providers would also have to disclose any possible conflicts of interest that could affect the plan's performance. The rule would also give protection to employers when plan providers don't completely disclose required information.

"This is going to make a significant difference in ensuring that fiduciaries get the information they need to best serve the interests of workers and to comply with their duties under the law," said Bradford P. Campbell, assistant secretary for the Labor Department's Employee Benefits Security Administration.

It usually takes six to nine months before a regulation becomes final, officials said. The department will take public comments on the regulation and then can make changes based on the comments. The proposed regulations must also be reviewed by the White House.

Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee, called the proposed rule "inadequate" because companies aren't required to disclose fees to workers, only employers. "The department has yet to offer real fee-disclosure rules that would be useful to workers trying to plan for their retirement," Miller said.

With 401(k) plans, employees can make tax-deferred contributions from their salaries to investment accounts. About 80 percent of investors in 401(k) plans do not know how much fees are eroding their account balances, according to a Government Accountability Office report released last year.

The Labor Department said the new regulation could cost as much as $52 million in its first year and fall from there, as companies offering 401(k)s and similar services create and disclose new information.