110 HR 3185 IH: 401(k) Fair Disclosure for Retirement U.S. House of Representatives 2007-07-26 text/xml EN Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.

I 110th CONGRESS 1st Session H. R. 3185 IN THE HOUSE OF REPRESENTATIVES July 26, 2007 Mr. George Miller of California introduced the following bill; which was referred to the Committee on Education and Labor A BILL To amend the Employee Retirement Income Security Act of 1974 to provide special reporting and disclosure rules for individual account plans and to establish in the Department of Labor an Advisory Council on Improving Employer-Employee Retirement Practices.

1.

Short title

This Act may be cited as the 401(k) Fair Disclosure for Retirement Security Act of 2007.

2.

Special reporting and disclosure rules for individual account plans

(a)

In general

Part 1 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 is amended— (1)by redesignating section 111 (29 U.S.C. 1031) as section 112; and (2)by inserting after section 110 (29 U.S.C. 1030) the following new section:

111.

Special reporting and disclosure rules for individual account plans

(a)

Disclosure to Employers Sponsoring 401(k) Plans

(1)

Service disclosure statement

The plan administrator of an individual account plan which includes a qualified cash or deferred arrangement (or any other plan official with contracting authority under the terms of the plan) may not enter into any contract with any person for services to the plan unless such plan administrator or other official has received, reasonably in advance of entering into the contract, a written statement from such person which— (A)identifies who will be performing services for the plan under the contract (including any other affiliated or other third party service provider whose services will be provided under the contract), and (B)describes each such service and specifies the expected total annual cost of such services, itemized as to all relevant components of the total cost, including any amounts to be paid to affiliated or other third-party service providers under the contract. (2)

Minimum itemization requirements

(A)

In general

The itemization required under paragraph (1)(B) shall set forth at least the following: (i)any commission for making a sale; (ii)any start-up fees; (iii)expenses for investment management; (iv)expenses for investment advice; (v)estimated trading expenses; (vi)expenses for administration and record keeping; (vii)legal fees; (viii)trustee fees; (ix)possible termination or surrender charges; (x)total asset based fees; (xi)remuneration paid as described in Rule 12b–1 of the Securities and Exchange Commission under the Investment Company Act of 1940 (17 CFR 270.12b–1); (xii)commissions paid as described in section 28(e) of the Securities Exchange Act of 1934 (15 U.S.C. 78bb(e)); and (xiii)such other costs as may be specified by the Secretary. (B)

Estimations

To the extent that the actual amount with respect to any information required to be provided in the itemization required under paragraph (1)(B) is not known, the plan administrator may provide a reasonable and representative estimate and shall indicate any such estimate as being such an estimate. If any estimate provided under this paragraph is subsequently determined to be materially incorrect, the plan administrator shall provide the correct amount in an amended report as soon as practicable after such correct amount is known. (C)

Definitions

The Secretary shall provide by regulation definitions of the terms used in this paragraph. (3)

Disclosure of financial relationships

The statement required under paragraph (1) shall include a written disclosure of the nature of any conflicts of interest of each service provider identified pursuant to paragraph (1)(A) due to financial or personal relationship— (A)which the service provider may have with the plan sponsor, the plan, or other persons providing services to the plan, and (B)for which the service provider receives a payment for services, including the extent to which the service provider uses its own proprietary investment products, the extent to which payments are received by a service provider for including certain investment options as part of a menu of investment options, and such other possible conflicts as may be specified by the Secretary.(4)

Disclosure of impact of share classes

The statement required under paragraph (1) shall, to the extent applicable, disclose that the share prices of certain mutual fund investments may be different than the retail share price outside of the plan due to the existence of different share classes. (5)

Disclosure of certain arrangements in connection with free or discounted services or rebates by service providers

In any case in which services are provided to the plan, or to the plan sponsor in connection with the plan, by any service provider without charge or for fees set at a discounted rate or subject to rebate, the statement required under this subsection shall include a description of the extent to which, and the amount by which, consideration is otherwise obtained by the service provider, the plan, or the plan sponsor for such services, directly or indirectly, by means of any charges against the account of the participant or beneficiary. (6)

Model statement

The Secretary shall prescribe a model statement that may be used for purposes of satisfying the requirements of this subsection. (7)

Updating

Each contract with a service provider entered into as described in paragraph (1) shall require that the service provider provide to the plan administrator, during the term of the contract, an updated written statement described in paragraph (1)— (A)at least annually, and (B)within 30 days of any material change in the information provided in the statement. (8)

Availability to participants

The plan sponsor or plan administrator shall— (A)provide to participants and beneficiaries a copy of any statement received pursuant to this subsection within 30 days after receipt of a written request for such statement, and (B)post a copy of such statement on any Intranet website maintained by the plan sponsor (or plan administrator on behalf of the plan sponsor). (9)

Limitation

The requirements of this subsection shall apply with respect to any contract for services only if the total cost for such services under such contract equals or exceeds $1,000. (10)

Qualified cash or deferred arrangement

For purposes of this subsection, the term qualified cash or deferred arrangement has the meaning given such term by section 401(k)(2) of the Internal Revenue Code of 1986. (b)

Investment election information

(1)

Advance notice of available investment options

The plan administrator of an individual account plan which permits a participant or beneficiary to exercise control over the assets in the account of the participant or beneficiary shall provide to the participant or beneficiary with respect to each plan year notice of the investment options available for election under the plan at least 15 days prior to— (A)the beginning of the plan year, and (B)the effective date of any material change in investment options, or, if later, on the date on which the participant commences participation in the plan.(2)

Information included in notice

The notice required under paragraph (1) shall— (A)set forth, with respect to each available investment option— (i)the name of the option, (ii)the investment objectives of the option, (iii)the level of risk associated with the option, (iv)whether the option is a comprehensive investment designed to achieve long-term retirement security or should be combined with other options in order to achieve such security, (v)the historical return and percentage fee assessed against amounts invested under the option, (vi)an explanation of the differences between any asset-based fees and any annual fees in connection with the option, (vii)a comparison to a nationally recognized market-based index or other investment option that is recommended in the retirement industry as a benchmark retirement investment option, (viii)where, and the manner in which, additional, plan-specific, and generally available investment information regarding the option may be obtained, (B)include, together with any form necessary for making the election of investment options, a statement explaining that investment options should be selected not only on the basis of the level of fees charged by each option but also on the basis of careful consideration of other key factors, including the level of risk of the option and historical returns by the option, and (C)include a fee menu, relating to all investment options available under the plan, as provided in paragraph (3). (3)

Fee menu

(A)

In general

The notice provided under this subsection shall include a fee menu consisting of a menu of the potential service fees that could be assessed against the account of the participant or beneficiary with respect to the plan year. The fee menu shall be presented in a manner which is easily understood by the average participant and include such information as the Secretary determines necessary to permit participants and beneficiaries to assess the potential services that could be provided in connection with the investment options and the potential fees that could be assessed against their accounts for such services. (B)

Categorization of fees

The fee menu shall provide information in relation to 3 categories of fees, as follows: (i)fees that vary depending on the investment options selected by the participant or beneficiary, including expense ratios, investment-specific asset-based fees, possible redemption fees, and possible surrender charges; (ii)fees that are assessed as a percentage of the total assets in the account of the participant or beneficiary, regardless of the investment option selected; and (iii)administration and transaction-based fees, including plan loan origination fees, that are either automatically deducted each year or result from certain transactions engaged in by the participant or beneficiary. (C)

Description of purpose for fees

The fee menu shall include a general description of the purposes for each fee, including whether such fee is for investment management, commissions, administration, and recordkeeping. (D)

Potential conflicts of interest

The fee menu shall include such information as the Secretary shall determine appropriate to describe potential conflicts of interests that may exist with respect to any service providers or other parties-in-interest receiving fees disclosed in the fee menu. (4)

Model notice

The Secretary shall prescribe a model notice that may be used for purposes of satisfying the requirements of this subsection, including a model fee menu. (5)

Estimations

To the extent that the actual amount with respect to any information required to be provided in the fee menu is not known, the plan administrator may provide a reasonable and representative estimate and shall indicate any such estimate as being such an estimate. If any estimate provided under this subsection is subsequently determined to be materially incorrect, the plan administrator shall provide the correct amount in an amended report as soon as practicable after such correct amount is known. (c)

Annual benefit statement provided to participants

(1)

In general

The plan administrator of an individual account plan which permits a participant or beneficiary to exercise control over the assets in the account of the participant or beneficiary shall provide to each participant and beneficiary an annual benefit statement, with respect to the assets in such account that are subject to such control, not later than 90 days after the close of each plan year. (2)

Requirements

The annual benefit statement of a plan shall disclose, for the preceding plan year— (A)the starting balance of the participant’s account, (B)the participant’s vesting status, (C)contributions made during the plan year, itemizing separately totals for employer and totals for employee contributions, (D)earnings on the account balance during the plan year, (E)fees assessed from the account during the plan year, (F)the ending balance of the account, (G)the participant’s asset allocation, categorized by investment option, including— (i)the current asset value, (ii)the changes in the asset value during the year, and (iii)the net return for the year, expressed as an amount and as a percentage, (H)the service fees charged against the participant’s account for the year for each investment option, indicating separately— (i)underlying investment fees, including expense ratios and trading costs, (ii)load fees, (iii)total asset based fees, including variable annuity charges, (iv)mortality and expense charges, (v)guaranteed investment contract fees, (vi)employer stock fees, (vii)directed brokerage charges, (viii)plan administration fees, (ix)participant transaction fees, (x)total fees, and (xi)total fees as a percentage of current assets, and (I)the performance of the investment options selected by the participant during the year as compared to a nationally recognized market-based index. (3)

Historical information

The plan administrator may include in the annual benefit statement information relating to the historical return and risk level of each investment option and the estimated amount that the participant needs to save each month to retire at age 65. (4)

Estimations

To the extent that the actual amount with respect to any information required to be provided in the annual benefit statement is not known, the plan administrator may provide a reasonable and representative estimate and shall indicate any such estimate as being such an estimate. If any estimate provided under this subsection is subsequently determined to be materially incorrect, the plan administrator shall provide the correct amount in an amended statement as soon as practicable after such correct amount is known. (5)

Model statement

The Secretary shall prescribe a model annual benefit statement that may be used for purposes of satisfying the requirements of this subsection. (d)

Construction

Nothing in this section shall be construed to limit, or serve as the basis for any inference regarding, the duties of a fiduciary under section 404(a)(1)(A)(ii). (e)

Assistance to small employers

The Secretary shall make available to small employers— (1)educational and compliance materials designed to assist such employers in selecting and monitoring service providers for individual account plans, investment options under such plans, and fees relating to such options, without any bias as to the size of the service provider and the way any particular service provider delivers plan services, and (2)services designed to assist small employers in finding and understanding affordable investment options for such plans. (f)

Assistance to plan sponsors and plan participants and beneficiaries

The Secretary shall provide assistance to plan sponsors of individual account plans and participants and beneficiaries under such plans with any questions or problems regarding compliance with the requirements of this section.

. (b)

Enforcement

Section 502(c)(7) of such Act (29 U.S.C. 1132(c)(7)) is amended by striking section 101. and inserting section 101, or to provide a statement to participants and beneficiaries in accordance with section 111. (c)

Conforming amendment

The table of contents in section 1 of such Act is amended by striking the item relating to section 111 and inserting the following new items: Sec. 111. Special reporting and disclosure rules for individual account plans. Sec. 112. Repeal and effective date. . (d)

Effective date

The amendments made by this section shall apply with respect to plan years beginning after the date of the enactment of this Act.

3.

Minimum investment option requirement

(a)

In general

Section 402 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1102) is amended by adding at the end the following new subsection: (c)An individual account plan which permits a participant or beneficiary to exercise control over the assets in the account of the participant or beneficiary shall include at least one investment option which is a nationally recognized market-based index fund and which, as determined from time to time under regulations which shall be prescribed by the Secretary, offers a combination of historical returns, risk, and fees that is likely to meet retirement income needs at adequate levels of contribution. . (b)

Effective date

The amendment made by this section shall apply with respect to plan years beginning after the date of the enactment of this Act.

4.

Advisory Council on Improving Employer-Employee Retirement Practices

(a)

In general

Part 5 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 is amended by adding after section 518 (29 U.S.C. 1148) the following new section:

519.

Advisory Council on Improving Employer-Employee Retirement Practices

(a)

Establishment

(1)

In general

There is hereby established in the Department of Labor an Advisory Council on Improving Employer-Employee Retirement Practices (hereinafter in this section referred to as the Council) consisting of 12 members— (A)6 of whom shall be appointed by the President, and (B)3 of whom shall be appointed by the Chairman of the Committee on Education and Labor of the House of Representatives, at the direction of the Committee, and 3 of whom shall be appointed by the Chairman of the Committee on Health, Education, Labor, and Pensions of the Senate, at the direction of the Committee. (2)

Qualifications

Members appointed under this subsection shall have demonstrated knowledge and experience in the law governing, and the operation of, employee pension benefit plans. In making appointments under this subsection, the President and the Chairmen making such appointments shall consult to as to ensure that, of the members appointed under this subsection— (A)6 shall be representatives of pension plan participants, and (B)6 shall be representatives of employers, with at least 2 of such representatives of employers having specialized knowledge regarding small business retirement plans. (3)

Terms

Members shall serve for terms of 3 years. A member may be reappointed. A member appointed to fill a vacancy shall be appointed only for the remainder of such term. (4)

Meetings

The Council shall meet not less often than semi-annually. A majority of members shall constitute a quorum and action shall be taken only by a majority vote of those present and voting. (b)

Administration and operations

(1)

Compensation

Members of the Council appointed under this subsection and the ex officio members of the Council shall serve without compensation for their service on the Council, except that, while away from their homes or regular places of business in the performance of services for Council, members of the Council shall be allowed travel expenses, including per diem in lieu of subsistence, in the same manner as persons employed intermittently in the Government service are allowed expenses under section 5703(b) of title 5 of the United States Code. (2)

Administrative resources

The Secretary shall furnish to the Council an executive secretary and such secretarial, clerical, and other services as are deemed necessary to conduct its business. The Council may call upon other agencies of the Government for statistical data, reports, and other information which will assist the Council in the performance of its duties. (3)

Federal Advisory Committee Act

Section 14(a) of the Federal Advisory Committee Act (relating to termination) shall not apply to the Council. (c)

Duties of the Council

It shall be the duty of the Council— (1)to invite members of the public to submit requests for the Council to consider any issue affecting the operation of employee pension benefit plans and to review all issues presented to the Council, to schedule any such issues for consideration by the Council as the Council deems appropriate, (2)to hold such hearings as the Council considers appropriate to hear testimony of relevant experts and key stakeholders in issues relating to employee retirement income security under employee pension benefit plans, (3)to issue such advisories as the Council considers appropriate to pension plan practitioners, service providers, and the public on best practices for employee pension benefit plan design and operation, (4)to present to employee pension benefit plans, plan service providers, and the public such academic or peer-reviewed research as the Council considers appropriate regarding best practices for employee pension benefit plan design and operation, (5)to issue information directed at employee pension benefit plan fiduciaries and participants regarding ways to benchmark their investment results against other plan designs and investment options, (6)to establish and maintain a presence on the website maintained by the Department of Labor for access by the general public and to include on such website (in addition to such other means of communication as the Council deems appropriate)— (A)information, presented in a prominent manner, about the Council and how citizens may write to the Council raising issues concerning the operation of employee pension benefit plans, and (B)information otherwise issued by the Council, as determined appropriate by the Council, (7)to issue, in addition to the Annual Report on Retirement Trends and Issues issued pursuant to subsection (d), an annual report to the Secretary, the President, the Committee on Education and Labor of the House of Representatives, and the Committee on Health, Education, Labor, and Pensions of the Senate summarizing— (A)those issues which were presented to the Council during the year covered by the report, (B)those issues which were discussed during meetings of the Council, and (C)recommendations made to the Council by Members of Congress, officials of the Employee Benefits Security Administration, employers, service providers, employees, and retirees, and (8)to make, from time to time, such recommendations to the Committee on Education and Labor of the House of Representatives, the Committee on Health, Education, Labor, and Pensions of the Senate, the Secretary, employers, service providers, employees, and the general public as the Council deems appropriate on ways to improve the delivery and operation of employee pension benefit plans. (d)

Annual Report on Retirement Trends and Issues

(1)

In general

The Council shall issue an annual report to each House of the Congress and to the general public regarding the state of retirement income security in the United States, including— (A)data illustrating the current operation of the employer-sponsored retirement system in the United States and emerging trends relating to such system, and (B)recommendations for reform to improve the delivery of employer-sponsored pension benefits to retired workers and their families and improve adequacy of retirement income security in the United States. (2)

Other specific information

The Annual Report issued pursuant to paragraph (1) shall specify— (A)the number of private employee pension benefit plans in the United States, categorized as to types of plans as determined appropriate by the Council, (B)the number of active workers covered or participating in such plans, (C)the number of retirees and dependents receiving benefits from such plans, (D)the number workers who have separated from service covered under such plans and who have roll-over pension accounts or deferred vested benefits, (E)the number of workers and retirees with no private employee pension benefit plan coverage or benefits, (F)current design features of employee pension benefit plans relating to retirement income security, including— (i)contribution levels, (ii)benefit levels, (iii)vesting periods, (iv)annuity features and lump sum payment features, (v)eligibility requirements, (vi)pre-retirement distributions, and (vii)investment of plan assets, and (G)such other information as the Council deems appropriate.

. (b)

Conforming amendment

The table of contents in section 1 of such Act is amended by inserting after the item relating to section 518 the following new item: Sec. 519. Advisory Council on Employee Benefit Best Practices. .

5.

Enforcement coordination and review by the Department of Labor

(a)

In general

Section 502 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1132) is amended by adding at the end the following new subsection: (n)

Enforcement coordination of certain disclosure requirements and review by the Department of Labor

(1)

In general

The Secretary shall notify the applicable regulatory authority (including, as determined appropriate by the Secretary, the Securities and Exchange Commission or the Comptroller of the Currency) in any case in which the Secretary determines that a service provider is engaged in a pattern or practice that precludes compliance by plan administrators with section 111. The Secretary shall, in consultation with the applicable authority, take such timely enforcement action under this title as is necessary to assure that such pattern or practice ceases and desists and assess any appropriate penalties. The Secretary shall widely disseminate to employee pension benefit plans covered by this title and their participants and beneficiaries the identity of any service providers with respect to such plans found to be engaged in any such pattern or practice and the particulars of such pattern or practice. (2)

Annual audit of representative sampling of individual account plans

The Secretary shall annually audit a representative sampling of individual account plans covered by this title to determine compliance with the requirements of section 111. The Secretary shall annually report the results of such audit and any related recommendations of the Secretary to the Committee on Education and Labor of the House of Representatives and the Committee on Health, Education, Labor, and Pensions of the Senate. . (b)

Review and report to the Congress by Secretary of Labor relating to reporting and disclosure requirements

(1)

Study

As soon as practicable after the date of the enactment of this Act, the Secretary of Labor shall review the reporting and disclosure requirements of part 1 of subtitle B of this title and related provisions of the Pension Protection Act of 2006. (2)

Report

Not later than 18 months after the date of the enactment of this Act, the Secretary shall make such recommendations as the Secretary considers appropriate to the appropriate committees of the Congress to consolidate, simplify, standardize, and improve the applicable reporting and disclosure requirements so as to simplify reporting for employee pension benefit plans and ensure that needed understandable information is provided to participants and beneficiaries of such plans.