On Thursday, Bradford P. Campbell, who is the assistant secretary of labor for employee benefits security, testified before the House Education and Labor Committee in support of improved disclosure of 401(k) fees and expenses.
Campbell’s testimony focused on the Labor Department’s current regulatory initiatives expanding disclosure requirements to provide participants, plan fiduciaries, and the public with better information about plans’ fees and expenses. Campbell described the department’s significant progress to date, noting that the law already provides the
Labor Department with all the needed regulatory authority, and warned against any legislation that might interfere with the department’s efforts.
Campbell also expressed his concerns that that the disclosures to workers in pending legislation would not provide concise, useful fee information. He said that the government should not be the one to select and mandate specific investment products in 401(k) plans, which would workers and employers from designing benefits that best serve their mutual needs.
A 401(k) plan is a retirement savings plan funded by employee contributions and often with matching contributions from the employer. In these plans, which are part of a dramatically growing industry as traditional pension plans fade away, the contribution money is tax-sheltered, and the funds grow tax-free until the time when they are withdrawn. In 401 (k) plans, there are caps placed by the plan and IRS regulations to limit the permitted percentage of salary-deferral contributions. In addition, there are restrictions on how and when employees can withdraw these assets. In 401 (k) plans where participants direct their own investments, the plans provide a core group of investment products from which participants make their choices. For other plans, the employer pays professional money managers to direct and manage employees’ investments.
With the cost of meeting fixed corporate pension payouts and the contractual health-care obligations of retirees spiraling upward as the current workforce rapidly ages, companies that pay matching contributions to employee 401 (k) plans have been cutting back their matching payments or paying with company stock instead of actual dollars.
In December of 2006, Democratic Representative George Miller said that the 401(k) industry, which at the time was already managing at least $2.4 trillion in the retirement funds of at least 47 million people, wasn’t doing enough to disclose fees that he contended are eating up people’s savings without their awareness, as over 80% of 401 (k) participants were found to be unaware of some or all of the management fees they were paying.
“Ensuring participants and fiduciaries have the information they need to make informed decisions is a top priority for the Labor Department. We will continue to implement regulations fostering fair, competitive, and transparent prices for services and combating excessive or hidden plan fees,” said Campbell.
U.S. Department of Labor (PR Newswire), “U.S. Labor Department Testifies Before House Education and Labor Committee on 401(k) Fee Disclosure”