[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3765 Introduced in House (IH)]







110th CONGRESS
  1st Session
                                H. R. 3765

To amend the Internal Revenue Code of 1986 to provide transparency with 
 respect to fees and expenses charged to participant-directed defined 
                          contribution plans.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            October 4, 2007

 Mr. Neal of Massachusetts (for himself and Mr. Larson of Connecticut) 
 introduced the following bill; which was referred to the Committee on 
                             Ways and Means

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to provide transparency with 
 respect to fees and expenses charged to participant-directed defined 
                          contribution plans.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Defined Contribution Plan Fee 
Transparency Act of 2007''.

SEC. 2. DISCLOSURE TO PARTICIPANTS.

    (a) In General.--Chapter 43 of the Internal Revenue Code of 1986 
(relating to qualified pension, etc. plans) is amended by adding at the 
end the following new section:

``SEC. 4980H. FAILURE TO PROVIDE NOTICE TO PARTICIPANTS OF PLAN FEE 
              INFORMATION.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any plan administrator of an applicable defined contribution 
plan to meet the requirements of subsection (e) with respect to any 
participant or beneficiary.
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any participant 
        or beneficiary shall be $100 for each day in the noncompliance 
        period.
            ``(2) Noncompliance period.--For purposes of paragraph (1), 
        the noncompliance period with respect to a failure is the 
        period beginning on the date the plan administrator failed to 
        provide notice to participants and beneficiaries in accordance 
        with subsection (e) and ending on the date the notice to which 
        the failure relates is provided or the failure is otherwise 
        corrected.
            ``(3) Separate treatment of violations.--For purposes of 
        paragraph (1), each violation with respect to any single 
        participant or beneficiary shall be treated as a separate 
        violation.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Annual aggregate limitation.--The total amount of tax 
        imposed by this section with respect to any plan administrator 
        for any plan year shall not exceed $500,000.
            ``(2) Tax not to apply to failures corrected within 90 
        days.--No tax shall be imposed by subsection (a) on any failure 
        if--
                    ``(A) any person subject to liability for the tax 
                under subsection (a) exercised reasonable diligence to 
                meet the requirements of subsection (e), and
                    ``(B) such person provides the notice described in 
                subsection (e) during the 90-day period beginning on 
                the date such person knew, or exercising reasonable 
                diligence would have known, that such failure existed.
            ``(3) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary shall waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive or otherwise inequitable relative to the failure 
        involved.
    ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
            ``(1) In the case of a plan other than a multiemployer 
        plan, the employer maintaining the plan.
            ``(2) In the case of a multiemployer plan, the plan.
    ``(e) Notice of Fees and Expenses to Participants.--
            ``(1) In general.--The requirements of this subsection are 
        met if the plan administrator of an applicable defined 
        contribution plan meets the requirements of paragraphs (2), 
        (3), (4), and (5).
            ``(2) Enrollment notice.--
                    ``(A) In general.--A plan administrator meets the 
                requirements of this paragraph if each employee 
                eligible to participate is, before the initial 
                investment of any contribution made on behalf of such 
                employee, given a written explanation of the plan's 
                fees and expenses, the key characteristics of the 
                plan's investment alternatives and an explanation of 
                the manner for making elections among investment 
                alternatives.
                    ``(B) Written explanation safe harbor.--An 
                explanation shall be treated as satisfying the written 
                explanation requirement of subparagraph (A) if such 
                explanation is in writing and provides a description, 
                to the extent applicable, of the following:
                            ``(i) The investment alternatives available 
                        to a participant under the plan and the method 
                        for a participant making investment elections.
                            ``(ii) With respect to each investment 
                        alternative--
                                    ``(I) a general description of the 
                                alternative's investment objectives, 
                                risk and return characteristics, 
                                historic rates of return, and the name 
                                of the alternative's investment 
                                manager;
                                    ``(II) whether the alternative is 
                                actively or passively managed; and
                                    ``(III) whether the alternative is 
                                designed to be a comprehensive, stand-
                                alone investment for retirement that 
                                provides varying degrees of long-term 
                                appreciation and capital preservation 
                                through a mix of equity and fixed 
                                income exposures.
                            ``(iii) Annual asset-based fees for each 
                        investment alternative which reduce the 
                        investment alternative's rate of return and, if 
                        applicable, a statement that the fees and 
                        expenses of one or more investment alternatives 
                        pay for services other than investment 
                        management.
                            ``(iv) Annual fees and expenses for 
                        administration and recordkeeping which are 
                        deducted from (or reduce the income of) 
                        participants' or beneficiaries' accounts and 
                        which are not reflected in clause (iii), 
                        including a statement of the method used to 
                        allocate fees and expenses described in this 
                        clause to participants' and beneficiaries' 
                        accounts.
                            ``(v) Fees and expenses in connection with 
                        purchases or sales of interests in investment 
                        alternatives.
                            ``(vi) The existence of fees and expenses 
                        associated with participant-initiated 
                        transactions or services which may be deducted 
                        from participants' or beneficiaries' accounts 
                        other than fees and expenses described in 
                        clause (v) and the method that participants and 
                        beneficiaries may utilize to obtain additional 
                        information regarding such fees and expenses.
                            ``(vii) Fees and expenses which may be 
                        deducted from participants' or beneficiaries' 
                        accounts and which are not reflected in clauses 
                        (iii) through (vi).
                            ``(viii) A statement explaining that 
                        investment alternatives should be selected not 
                        only on the basis of the level of fees charged 
                        by each alternative but also on the basis of 
                        consideration of other key factors, including 
                        the alternative's investment objective, level 
                        of risk, historic rates of return and the 
                        participant's personal investment objective.
            ``(3) Annual notice.--
                    ``(A) In general.--A plan administrator meets the 
                requirements of this paragraph if each participant and 
                beneficiary is, within 90 days following the end of 
                each plan year, given a written explanation describing 
                the investment alternatives that the participant or 
                beneficiary had selected as of the last day of the plan 
                year and the key characteristics of such investment 
                alternatives.
                    ``(B) Written explanation safe harbor.--An 
                explanation shall be treated as satisfying the written 
                explanation requirement of subparagraph (A) if such 
                explanation is in writing and provides a description, 
                to the extent applicable, of the following:
                            ``(i) The different asset classes that the 
                        participant's or beneficiary's account is 
                        invested in and the percentage of the account 
                        allocated to each asset class.
                            ``(ii) The total fees and expenses 
                        described in paragraph (2)(B)(vi) which were 
                        deducted from the participant's or 
                        beneficiary's account.
                            ``(iii) Fees and expenses for 
                        administration and recordkeeping that were 
                        deducted from a participant's or beneficiary's 
                        account (to the extent not disclosed in clause 
                        (ii));
                            ``(iv) With respect to each investment 
                        alternative selected by the participant or 
                        beneficiary, the following:
                                    ``(I) The percentage of the 
                                participant's or beneficiary's account 
                                that is invested in such alternative.
                                    ``(II) Whether the investment 
                                alternative is actively or passively 
                                managed.
                                    ``(III) A general statement of the 
                                investment alternative's risk and 
                                return characteristics.
                                    ``(IV) Annual asset-based fees for 
                                each investment alternative which 
                                reduced the investment alternative's 
                                rate of return.
                                    ``(V) Historic rates of return for 
                                the investment alternative over the 
                                immediately preceding 1, 5, and 10-year 
                                periods. For this purpose, the periods 
                                may be calendar or plan years.
                                    ``(VI) Fees and expenses in 
                                connection with purchases or sales of 
                                interests in investment alternatives 
                                which have been or may be deducted from 
                                the participant's or beneficiary's 
                                account.
                            ``(v) The statement described in paragraph 
                        (2)(B)(viii).
                            ``(vi) A statement regarding how a 
                        participant or beneficiary may access the 
                        information required to be disclosed under 
                        paragraph (2).
            ``(4) Service provider disclosure.--The requirements of 
        this paragraph are met if the plan administrator--
                    ``(A) provides to participants and beneficiaries a 
                copy of any statement received pursuant to section 
                4980I within 30 days after receipt of a written request 
                for such statement, and
                    ``(B) posts a copy of such statement on any 
                Intranet or Internet website maintained for the purpose 
                of providing participants and beneficiaries access to 
                plan information.
            ``(5) Notice of investment menu changes.--The requirements 
        of this paragraph are met if, in advance of any change in the 
        investment alternatives available under the plan, the plan 
        administrator shall provide the notice described in paragraph 
        (2) to affected participants and beneficiaries with respect to 
        the change in investment alternatives.
            ``(6) Form of fee disclosure.--Fees and expenses may be 
        expressed as a dollar amount or as a percentage of assets (or a 
        combination thereof).
            ``(7) Alternative methods of compliance.--
                    ``(A) In general.--The Secretary shall allow any 
                explanation under this section to be provided by using 
                new technologies in the same manner as new technologies 
                are allowed with respect to other explanations and 
                notices required under section 401(a).
                    ``(B) Calendar year treated as plan year.--The 
                Secretary shall allow a plan administrator to treat the 
                calendar year as the plan year for purposes of 
                paragraph (3).
                    ``(C) Regulations.--The Secretary shall issue 
                regulations that permit plan administrators--
                            ``(i) to provide a written notice of the 
                        availability of the information described under 
                        paragraphs (2), (3), (4), and (5) and to make 
                        such information available through new 
                        technologies, and
                            ``(ii) in appropriate circumstances to 
                        provide the notice described in paragraph (2) 
                        after the initial contribution made on a 
                        participant's behalf in the case of a plan that 
                        provides for automatic enrollment.
            ``(8) Reasonable estimates permitted.--A plan administrator 
        shall not be treated as failing to satisfy the requirements of 
        paragraphs (2), (3), and (5) solely because the plan 
        administrator uses reasonable estimates of expenses and fees or 
        reasonably allocates fees and expenses among different fee 
        classifications. For purposes of paragraph (3), an estimate 
        shall be considered as reasonable if such estimate is based on 
        fees and expenses as of the last day of the plan year 
        immediately preceding the date the notice is provided or any 
        subsequent date preceding the date the notice is provided.
            ``(9) Combination with other notices.--A plan shall not be 
        treated as failing to satisfy the requirements of paragraphs 
        (2), (3), and (5) solely because the information is provided in 
        combination with other plan communications or in more than one 
        plan communication provided contemporaneously.
            ``(10) Model statement.--The Secretary shall prescribe 
        model statements that may be used for purposes of satisfying 
        the requirements of paragraphs (2), (3), and (5).
    ``(f) Definitions.--
            ``(1) Applicable defined contribution plan.--The term 
        `applicable defined contribution plan' means the portion of any 
        defined contribution plan which--
                    ``(A) permits a participant or beneficiary to 
                exercise control over assets in his or her account; and
                    ``(B) is described in clauses (iii) through (vi) of 
                section 402(c)(8)(B).
            ``(2) Plan administrator.--The term `plan administrator' 
        has the meaning given such term by section 414(g).
    ``(g) Regulatory Authority.--The Secretary of Treasury shall issue 
regulations for purposes of this section, including regulations 
addressing the appropriate classification of fees and expenses and the 
disclosure of fees and expenses in investment alternatives that do not 
have explicit fees, including investment alternatives that provide a 
guaranteed rate of return.''.
    (b) Clerical Amendment.--The table of sections for chapter 43 of 
such Code is amended by adding at the end the following new item:

``Sec. 4980H. Failure to provide notice to participants of plan fee 
                            information.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning on or after January 1, 2009.

SEC. 3. DISCLOSURE BETWEEN SERVICE PROVIDERS AND PLANS.

    (a) In General.--Chapter 43 of the Internal Revenue Code of 1986 
(relating to qualified pension, etc. plans), as amended by section 2, 
is amended by adding at the end the following new section:

``SEC. 4980I. FAILURE TO PROVIDE NOTICE OF PLAN FEE INFORMATION TO PLAN 
              ADMINISTRATORS.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on any 
service provider that fails to meet the requirements of subsection (d) 
with respect to any applicable defined contribution plan.
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any applicable 
        defined contribution plan shall be $1,000 for each day in the 
        noncompliance period.
            ``(2) Noncompliance period.--For purposes of paragraph (1), 
        the noncompliance period with respect to a failure is the 
        period beginning on the date the service provider failed to 
        meet the requirements of subsection (d) and ending on the date 
        such requirements to which the failure relates are met or the 
        failure is otherwise corrected.
            ``(3) Separate treatment of violations.--For purposes of 
        paragraph (1), each violation with respect to any applicable 
        defined contribution plan shall be treated as a separate 
        violation.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Aggregate limitation.--The total amount of tax 
        imposed by subsection (a) with respect to any service provider 
        for any calendar year shall not exceed $1,000,000.
            ``(2) Tax not to apply to failures corrected within 90 
        days.--No tax shall be imposed by subsection (a) on any failure 
        if--
                    ``(A) the service provider subject to liability for 
                the tax under subsection (a) exercised reasonable 
                diligence to meet the requirements of subsection (d), 
                and
                    ``(B) such service provider provides the notice 
                described in subsection (d) during the 90-day period 
                beginning on the date such person knew, or exercising 
                reasonable diligence would have known, that such 
                failure existed.
            ``(3) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive or otherwise inequitable relative to the failure 
        involved.
    ``(d) Notice of Fees and Expenses.--
            ``(1) In general.--The requirements of this subsection are 
        met if the service provider meets the requirements of 
        paragraphs (2), (3), (4), and (5).
            ``(2) Initial disclosure.--A service provider meets the 
        requirements of this paragraph if the service provider, prior 
        to entering into (or materially modifying) a contract with a 
        plan for the provision of plan services, provides the plan 
        administrator with the following, in writing:
                    ``(A) An estimate of--
                            ``(i) the total fees and expenses expected 
                        to be paid by the plan under the contract, 
                        including itemization of the following 
                        components in the case of a contract that 
                        provides for both investment management and 
                        administration and recordkeeping;
                            ``(ii) annual fees and expenses for 
                        investment management; and
                            ``(iii) annual fees and expenses for 
                        administration and recordkeeping.
                    ``(B) A detailed and itemized list of the services 
                to be provided by the service provider under the 
                contract.
                    ``(C) A statement of whether the service provider 
                reasonably expects to remit fees and expenses expected 
                to be paid by the plan under the contract to one or 
                more third-party service providers or intermediaries 
                and, if so, a statement of the amount expected to be 
                paid to each such third-party and the identity of each 
                such third-party.
                    ``(D) A statement of whether the service provider 
                expects to receive compensation from a source other 
                than the plan or plan sponsor in connection with the 
                services provided to the plan and, if so, a statement 
                of the amount expected to be received from each such 
                source and the identity of each such source.
            ``(3) Periodic disclosure.--A service provider meets the 
        requirements of this paragraph if the service provider, within 
        90 days following the end of each plan year, provides a written 
        statement of the following:
                    ``(A) Fees and expenses paid by the plan to the 
                service provider under the arrangement during the plan 
                year, including itemization of the components described 
                in subparagraphs (A) and (C) of paragraph (2).
                    ``(B) The amount of any compensation received by 
                the service provider during the plan year from each 
                source other than the plan or plan sponsor in 
                connection with the services provided to the plan by 
                the service provider and the identity of each such 
                source.
            ``(4) Form of fee disclosure.--Fees and expenses may be 
        expressed as a dollar amount or as a percentage of assets (or a 
        combination thereof).
            ``(5) Reasonable estimates permitted.--A service provider 
        shall not be treated as failing to satisfy the requirements of 
        this subsection solely because--
                    ``(A) the service provider that does not separately 
                price services attributable to the components described 
                in subparagraph (A) of paragraph (2) reasonably 
                allocates fees and expenses among such components;
                    ``(B) the service provider uses reasonable 
                estimates of expenses, fees and compensation if the 
                service provider discloses the basis for such 
                estimates; or
                    ``(C) the service provider discloses amounts under 
                subparagraphs (C) and (D) of paragraph (2) only to the 
                extent that such amounts are expected to exceed $5,000.
            ``(6) Alternative method of compliance.--A service provider 
        shall not be treated as failing to satisfy the requirements of 
        paragraph (2) if disclosure is made on the basis of calendar 
        years, as the plan administrator specifies.
            ``(7) Regulatory authority.--The Secretary shall issue 
        regulations to carry out this subsection, including regulations 
        addressing the appropriate classification of fees and expenses 
        under subparagraph (A) of paragraph (2).
    ``(e) Definitions.--For purposes of this section--
            ``(1) Applicable defined contribution plan.--The term 
        `applicable defined contribution plan' means any defined 
        contribution plan described in clauses (iii) through (vi) of 
        section 402(c)(8)(B).
            ``(2) Service provider.--The term `service provider' means 
        any person providing services to a plan under a contract. For 
        this purpose, all corporations that provide services to a plan 
        and are members of a controlled group of corporations within 
        the meaning of section 1563(a) (determined without regard to 
        subsections (a)(4) and (e)(3)(C) thereof) shall be treated as a 
        single service provider.''.
    (b) Clerical Amendment.--The table of sections for chapter 43 of 
such Code, as so amended, is amended by adding at the end the following 
new item:

``Sec. 4980I. Failure to provide notice of plan fee information to plan 
                            administrators.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to arrangements entered into (or materially modified) on or after 
the 90th day after the date of the enactment of this Act.
                                 <all>