[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2779 Introduced in House (IH)]

111th CONGRESS
  1st Session
                                H. R. 2779

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


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              June 9, 2009

  Mr. Neal of Massachusetts (for himself, Mr. Pomeroy, Mr. Larson of 
 Connecticut, Mr. Crowley, and Ms. Schwartz) 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, and to improve participant communication.

    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 2009''.

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) Aggregate limitation.--The total amount of tax 
        imposed by this section with respect to any plan for any plan 
        year shall not exceed an amount equal to the lesser of--
                    ``(A) 10 percent of the assets of the plan, 
                determined as of the first day of such plan year, and
                    ``(B) $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) Reliance.--To the extent any of the information 
        required to be disclosed by a plan administrator under this 
        section is given to the plan administrator by a service 
        provider, the plan administrator may rely on the completeness 
        and accuracy of such information unless the plan 
        administrator--
                    ``(A) knows, or has reason to know, that the 
                information is inaccurate or incomplete, or
                    ``(B) has notice of facts or information that would 
                prompt a reasonable plan administrator to inquire into 
                the accuracy or completeness of the information.
            ``(4) 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) Notice of investment information.--
                    ``(A) In general.--A plan administrator meets the 
                requirements of this paragraph if each employee 
                eligible to participate is, a reasonable time before 
                the initial investment of any contribution made on 
                behalf of such employee and at least annually 
                thereafter, given an explanation of the plan's fees and 
                expenses, the key characteristics of the plan's 
                designated investment alternatives, and an explanation 
                of the manner for making elections among designated 
                investment alternatives.
                    ``(B) Requirements.--An explanation shall only be 
                treated as satisfying the explanation requirement of 
                subparagraph (A) if such explanation provides a 
                description, to the extent applicable, of the 
                following:
                            ``(i) The designated investment 
                        alternatives available to a participant under 
                        the plan, the method for a participant to make 
                        investment elections, and an explanation of any 
                        specified limitations on such elections under 
                        the documents and instruments governing the 
                        plan, including any restrictions on transfer to 
                        or from an investment alternative.
                            ``(ii) With respect to each designated 
                        investment alternative--
                                    ``(I) a general description of the 
                                alternative's investment objectives and 
                                principal investment strategies, 
                                principal risk and return 
                                characteristics, and the name of the 
                                alternative's investment manager,
                                    ``(II) whether the alternative is 
                                actively managed or passively managed 
                                in relation to an index and the 
                                difference between active management 
                                and passive management,
                                    ``(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,
                                    ``(IV) rates of return for the 
                                investment alternative over the 
                                immediately preceding 1-, 5-, and 10-
                                year periods (determined on either a 
                                calendar or plan year basis),
                                    ``(V) the name and returns of an 
                                appropriate broad-based securities 
                                market index over the preceding 1-, 
                                5-, and 10-year periods, which is not 
                                administered by the service provider or 
                                an affiliate thereof unless the index 
                                is widely recognized and used, and
                                    ``(VI) fees and expenses in 
                                connection with purchases or sales of 
                                interests in the investment 
                                alternative, such as sales loads, sales 
                                charges, deferred sales charges, 
                                redemption fees, surrender charges, 
                                exchange fees and other similar fees 
                                and expenses.
                            ``(iii) The annual total operating expenses 
                        for each designated investment alternative and, 
                        if applicable, a statement that the fees and 
                        expenses of the 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) 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 (ii)(VI) and the method that 
                        participants and beneficiaries may utilize to 
                        obtain additional information regarding such 
                        fees and expenses.
                            ``(vi) Fees and expenses which may be 
                        deducted from participants' or beneficiaries' 
                        accounts and which are not reflected in clauses 
                        (iii), (iv), or (v).
                            ``(vii) A statement of where, and the 
                        manner in which, additional alternative-
                        specific and generally available investment 
                        information may be obtained (such as an 
                        Internet Web site address).
                            ``(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) Notice of account charges.--
                    ``(A) In general.--A plan administrator meets the 
                requirements of this paragraph if each participant and 
                beneficiary is, at least once each calendar quarter, 
                given an explanation describing the investment 
                alternatives in which the participant's or 
                beneficiary's account is invested as of the last day of 
                the preceding quarter and the key characteristics of 
                such investment alternatives.
                    ``(B) Requirements.--An explanation shall only be 
                treated as satisfying the explanation requirement of 
                subparagraph (A) if such explanation provides a 
                description, to the extent applicable, of the following 
                for the preceding quarter:
                            ``(i) As of the last day of the quarter, 
                        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 administration and 
                        recordkeeping fees and expenses described in 
                        paragraph (2)(B)(iv) which were deducted from 
                        the participant's or beneficiary's account 
                        during the quarter.
                            ``(iii) The total fees and expenses for 
                        participant-initiated transactions or services 
                        described in paragraph (2)(B)(v) which were 
                        deducted from the participant's or 
                        beneficiary's account during the quarter.
                            ``(iv) The total other fees and expenses 
                        described in paragraph (2)(B)(vi) which were 
                        deducted from the participant's or 
                        beneficiary's account during the quarter.
                            ``(v) With respect to each investment 
                        alternative in which the participant or 
                        beneficiary was invested as of the last day of 
                        the quarter, 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 principal risk 
                                and return characteristics.
                                    ``(IV) Total annual operating 
                                expenses for the investment 
                                alternative.
                            ``(vi) Fees and expenses in connection with 
                        purchases or sales of interests in investment 
                        alternatives which have been deducted from the 
                        participant's or beneficiary's account during 
                        the quarter.
                            ``(vii) The statement described in 
                        paragraph (2)(B)(viii).
                            ``(viii) 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 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.
            ``(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 provides 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). If fees and expenses are expressed (in 
        part or in whole) as a percentage of assets, the disclosure 
        shall include a generic example that illustrates how a charge 
        that is expressed as a percentage of assets is assessed in 
        dollars on an account balance.
            ``(7) Certain estimates permitted.--A plan administrator 
        shall not be treated as failing to satisfy the requirements of 
        paragraphs (2), (3), and (4) solely because the plan 
        administrator uses estimates of expenses and fees, or allocates 
        fees and expenses among different fee classifications, in a 
        manner that is reasonable and in good faith. For purposes of 
        paragraph (3), an estimate shall be considered to be reasonable 
        and in good faith 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. Nothing in this 
        paragraph shall be construed to require a plan administrator to 
        use the same estimation methodology for every investment 
        alternative.
            ``(8) Combination with other notices.--A plan shall not be 
        treated as failing to satisfy the requirements of paragraphs 
        (2), (3), and (4) solely because the information is provided in 
        combination with other plan communications or in more than one 
        plan communication provided contemporaneously.
            ``(9) Model statement.--The Secretary shall prescribe model 
        statements that may be used for purposes of satisfying the 
        requirements of paragraphs (2), (3), and (4).
            ``(10) Annual compliance for small plans.--A plan that has 
        fewer than 100 participants and beneficiaries as of the first 
        day of the plan year may provide the notice described in 
        paragraph (3) on an annual rather than a quarterly basis.
            ``(11) 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).
            ``(12) Plain language.--Explanations and notices under this 
        subsection shall be provided in a manner which is easily 
        understandable by the typical plan participant.
            ``(13) Regulations.--The Secretary shall issue regulations 
        that permit plan administrators--
                    ``(A) 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 or 
                immediate eligibility, and
                    ``(B) in appropriate circumstances to provide the 
                notice described in paragraph (4) after the investment 
                menu change is effective.
    ``(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 shall issue regulations 
for purposes of this section, including regulations which--
            ``(1) identify and establish separate rules, if necessary, 
        for any investment options that provide a guaranteed rate of 
        return and do not identify specific fees, and
            ``(2) provide guidelines, and a safe harbor, for the 
        selection of an appropriate broad-based securities market index 
        for purposes of paragraph (2)(B)(ii)(V) for a designated 
        investment alternative.''.
    (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.''.

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.--
            ``(1) Aggregate limitation.--The total amount of tax 
        imposed by this section on any service provider for any failure 
        with respect to any applicable defined contribution plan shall 
        not exceed an amount equal to the lesser of--
                    ``(A) 10 percent of the assets of the plan, 
                determined as of the first day of such plan year, and
                    ``(B) $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) Reliance.--To the extent any of the information 
        required to be disclosed by a service provider under this 
        section is given to the service provider by a person that is 
        not an affiliate of the service provider, the service provider 
        may rely on the completeness and accuracy of such information 
        unless the service provider--
                    ``(A) knows, or has reason to know, that the 
                information is inaccurate or incomplete, or
                    ``(B) has notice of facts or information that would 
                prompt a reasonable service provider to inquire into 
                the accuracy or completeness of the information.
            ``(4) 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.
            ``(5) Small service providers.--This section shall apply 
        with respect to any service provider for a plan year only if 
        the total fees and compensation received directly or indirectly 
        by the service provider, its affiliates and any subcontractor 
        of the service provider in connection with the services 
        arrangement is reasonably expected to equal or exceed $5,000.
            ``(6) Limitation on scope.--Nothing in this section shall 
        be construed to require any service provider to provide any 
        services with respect to any particular plan.
    ``(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) and (3).
            ``(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) the annual fees and expenses 
                        attributable to investment management, and
                            ``(iii) the annual fees and expenses 
                        attributable to plan administration and 
                        recordkeeping.
                    ``(B) A detailed and itemized list of the services 
                to be provided by the service provider, its affiliates, 
                and any subcontractors under the contract.
                    ``(C) A schedule of fees and expenses associated 
                with participant-initiated transactions or services 
                which may be deducted from participants' or 
                beneficiaries' accounts.
                    ``(D) A statement of whether the service provider 
                reasonably expects to remit fees and expenses expected 
                to be paid by the plan under the contract, including 
                commissions, finders fees, sales loads and charges, 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.
                    ``(E) 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.
                    ``(F) A statement of whether the service provider 
                (or any affiliate thereof) may benefit from the 
                offering of its own proprietary investment products or 
                those of third parties.
                    ``(G) To the extent applicable, a statement that 
                the investment options available to the plan may be 
                offered at different price levels to parties other than 
                the plan.
            ``(3) Periodic disclosure.--A service provider meets the 
        requirements of this paragraph if the service provider, by the 
        due date for filing the section 6058 annual return for the plan 
        year (determined without regard to extensions), 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 (D) 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) Certain 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) allocates fees and 
                expenses among such components in a manner that is 
                reasonable and in good faith,
                    ``(B) the service provider uses estimates of 
                expenses, fees and compensation if the service provider 
                discloses the basis for such estimates if such 
                estimates are made in a manner that is reasonable and 
                in good faith, or
                    ``(C) the service provider discloses amounts under 
                subparagraphs (D) and (E) of paragraph (2) only to the 
                extent that such amounts are expected to exceed $5,000 
                for the plan year.
            ``(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.
            ``(7) Plain language.--Disclosures under this subsection 
        shall be presesnted in a format which is easily understandable 
        by the typical plan administrator.
            ``(8) 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). Such regulations shall 
        include safe harbor methods for the allocation of expenses 
        under subparagraph (A) of paragraph (2) under which service 
        providers will be treated as having reasonably allocated fees 
        and expenses but such safe harbor methods shall not be the 
        exclusive methods for the allocation of expenses.
    ``(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.''.

SEC. 4. METHOD OF PROVIDING REQUIRED NOTICES AND DISCLOSURES.

    (a) Directive to Treasury.--The Secretary of the Treasury shall 
issue final regulations no later than 6 months after the date of 
enactment of this Act under which an applicable notice shall be treated 
as provided in writing or in written form if--
            (1) the applicable notice is posted on a secure Internet 
        Web site that is accessible to the participant or beneficiary,
            (2) a notice of the availability of such applicable notice 
        is provided in writing or in a manner that satisfies Treasury 
        regulation section 1.401(a)-21 at the same time that the 
        applicable notice is otherwise required, and
            (3) the notice of availability advises the recipient that 
        he or she may request and receive the applicable notice in 
        writing on paper at no charge and, upon request, the applicable 
        notice is provided in writing on paper to the recipient at no 
        charge.
    (b) Applicable Notice.--The term ``applicable notice'' includes any 
notice, report, statement, or other document required to be provided to 
a recipient under the following types of retirement plans: a qualified 
retirement plan under section 401(a) or 403(a) of the Internal Revenue 
Code of 1986; a section 403(b) plan under such Code; a simplified 
employee pension (SEP) under section 408(k) of such Code; a simple 
retirement plan under section 408(p) of such Code; and an eligible 
governmental plan under section 457(b) of such Code.

SEC. 5. EFFECTIVE DATE.

    (a) In General.--The amendments made by this Act shall apply to 
plan years beginning after one year after the date of the enactment of 
this Act.
    (b) Final Regulations.--The Secretary of the Treasury shall issue 
final regulations to carry out the amendments made by this Act not 
later than December 31, 2010.
                                 <all>