[Congressional Record Volume 153, Number 151 (Friday, October 5, 2007)]
[Extensions of Remarks]
[Pages E2077-E2078]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  INTRODUCTION OF FEE DISCLOSURE BILL

                                 ______
                                 

                          HON. RICHARD E. NEAL

                            of massachusetts

                    in the house of representatives

                       Thursday, October 4, 2007

  Mr. NEAL of Massachusetts. Madam Speaker, I rise today to introduce 
The Defined Contribution Plan Fee Transparency Act of 2007. That may be 
a long title, but the details are actually very simple.
  Earlier this summer, AARP conducted a survey of 401(k) participants 
to find out what they knew about the fees paid by their plans. Plan 
fees can make a huge difference in your account balance. As the 
Department of Labor has pointed out in a helpful guide on the issue, 
``Fees and expenses paid by your plan may substantially reduce the 
growth in your account.'' Literally, it pays to know what these 
expenses are. What the AARP found in their survey is instructive: 83 
percent of participants acknowledged they do not know how much they pay 
in fees or expenses. Already, the House Education and Labor Committee 
has held several hearings to higlight this issue, and I commend the 
Committee Chairman, Mr. Miller, for his leadership.
  The growth in defined contribution plans offers great opportunities 
for workers, with alternatives and options they did not have before. 
Many workers, however, are simply overwhelmed with the information 
distributed and, because of that, may not be able to utilize these 
opportunities. Certainly, more disclosure is preferred. But, as AARP 
found out, the need to better understand this information means it must 
be in an easily digestible format and in plain English.
  My legislation provides for disclosure both to the worker and to the 
employer. Participants, or workers, would get both an enrollment notice 
up-front and an annual notice updating them on their account. At 
enrollment, the bill requires that for each of the plan's investment 
alternatives, the employer would have to disclose the alternative's 
objective and investment manager, its risk and return characteristics 
and its historic rates of return. In addition, the employer must 
indicate whether the alternative is passively managed, as with an index 
fund, or actively managed and whether or not the alternative is a 
single-alternative investment solution, such as a lifecycle or target 
retirement date fund.
  Regarding fees, the bill requires employers to disclose the asset-
based fees for each investment alternative, whether such fees pay for 
services beyond investment management, such as plan administration, and 
whether there are additional charges for buying or selling the 
particular alternative, such as redemption fees. In addition, 
participants must be provided with information about any separate fees 
they will be charged for plan administration as well as a notice that 
certain plan services they may decide to use could have separate 
charges associated with them, such as investment advice programs, 
brokerage windows, or plan loans. Accompanying these disclosures would 
be a statement that participants should not select investments based 
solely on fees but based on careful consideration of a range of factors 
including the alternatives' risk level, returns and investment 
objectives.

  In addition to this enrollment notice, each year, participants would 
receive information about the investments they had selected and the 
fees applicable to their accounts. This annual notice would describe 
which investment alternatives the individual participant was invested 
in, what percentage of the participant's total account each alternative 
represented, the risk and return characteristics of each such 
alternative, whether such alternatives were passively or actively 
managed and the historical returns for each such alternative. The 
statement would also summarize for participants what asset classes 
their account is invested in, with percentage breakdowns. On fees, the 
annual notice must describe asset-based and any sales charges for the 
alternatives the participant has selected, any separate charges for 
plan administration and any deductions for participant-initiated 
services. In addition, to assist employees who may want to make 
investment changes, the notice must tell participants

[[Page E2078]]

how to access investment characteristic and fee information for 
alternatives in which they are not invested.
  My bill also requires service providers to disclose to employers 
various fee and expense information in advance of a contract. This will 
ensure that employers have the information they need to bargain 
effectively with plan service providers and to keep costs at reasonable 
levels for participants.
  Providers must give the employer an estimate of total fees and a 
detailed and itemized list of all the services to be provided under the 
contract. Providers that offer multiple bundled services must separate 
the fees charged under the contract into fees for investment 
management, fees for administration and recordkeeping and fees paid to 
intermediaries or other third-parties. Providers must also disclose 
whether they expect to receive payments from third-parties in 
connection with providing services to the plan, also referred to as 
revenue-sharing, and if so, must name those parties and the amount 
expected to be received from each. This revenue-sharing information is 
critical so that employers understand how their providers are being 
paid and whether any such financial relationships give rise to 
potential conflicts of interest. Plan service providers must also 
provide this detailed disclosure statement to employers every year the 
contract is in place and following any material modification of the 
contract. In addition, employers must make such statements available to 
plan participants via web posting and upon written request so that 
those employees who want to delve into the details of the plan's 
financing can do so.
  The Department of Labor's guide on 401(k) fees states that fees and 
expenses generally fall into three categories: plan administration, 
investment, and individual services fees. By requiring all service 
providers, whether they just provide recordkeeping or if they perform 
it all, to disclose fees in broad categories, such as these, companies 
and employees can better evaluate what they are getting for what price 
they pay. It is my understanding that some service providers are 
already disclosing more than what is required. I hope that we can 
capture those ``best practices'' and implement them across the board so 
that all workers and employers have the best data available.
  Additionally, my bill would apply not only to 401(k) plans, but to 
all tax-preferred, participant-directed defined contribution plans, 
including 403(b) plans and governmental 457(b) plans. These amendments 
are all within the Internal Revenue Code, and therefore, penalties for 
not complying will be taxes assessed per violation per day, subject to 
a cap. I hope to work with the Chairman of the Ways and Means 
Committee, Mr. Rangel, to address this issue within the Committee very 
soon as I know he shares my concern that the taxpayers' interests be 
protected.
  Despite the news that 8 in 10 participants do not know what fees are 
charged, there is some good news out there too. One recent study from 
the Investment Company Institute, or ICI, found that the asset-weighted 
expense ratios for stock mutual funds in 401(k) plans fell last year 
over the prior year. This may be in response to another finding from 
ICI--that more workers are considering fees over the investment's track 
record.
  It is my hope that this bill will provide much more information about 
plan fees and expenses in a useful way without overwhelming recipients. 
I urge my colleagues to join me in this effort.

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