[Congressional Record (Bound Edition), Volume 155 (2009), Part 11]
[Extensions of Remarks]
[Page 14473]
[From the U.S. Government Publishing Office, www.gpo.gov]




                  INTRODUCTION OF FEE DISCLOSURE BILL

                                 ______
                                 

                          HON. RICHARD E. NEAL

                            of massachusetts

                    in the house of representatives

                         Tuesday, June 9, 2009

  Mr. NEAL of Massachusetts. Madam Speaker, I rise today to introduce 
The Defined Contribution Plan Fee Transparency Act of 2009. During the 
last Congress, we expected some guidance from the Department of Labor 
on the issue of fee transparency, but not much was finally implemented. 
Therefore, I believe that Congressional action is warranted and this 
bill provides a strong disclosure requirement to benefit both workers 
and companies in understanding fees.
  A few years ago, 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. 
Considering the number of people who have told me they do not dare to 
even open their 401(k) statement in this devalued market, that 
percentage may have increased even more!
  But fees are a serious issue and one which participants need to 
understand from the outset. The House Education and Labor Committee has 
held several hearings to highlight this issue over the past 18 months, 
and I commend the Committee Chairman, Mr. Miller, for his leadership 
and thoughtful ideas about how to address fair disclosure.
  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.
  The legislation I am filing today, which updates the bill I filed 
last Congress, would provide for disclosure both to the worker and to 
the employer. Participants, or workers, would get both an enrollment 
notice up-front and a quarterly 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 comparison to a benchmark. In 
addition, the employer must indicate whether the alternative is 
passively managed, as with an index fund, or actively managed, plus the 
differences between these two investment styles 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 to employees 
at enrollment the annual operating expenses for each investment 
alternative (together with a translation of these asset-based fees into 
illustrative dollar amounts), 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. The bill 
requires this information about plan investments to be provided to 
employees annually as well.
  In addition to this enrollment notice, each quarter, participants 
would receive information about the investments they had selected and 
the fees applicable to their accounts. This quarterly 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 and whether such alternatives were passively or 
actively managed. The statement would also summarize for participants 
what asset classes their account is invested in, with percentage 
breakdowns. On fees, the quarterly notice must describe the annual 
operating expenses (with dollar examples) 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 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, a 
detailed and itemized list of all the services to be provided under the 
contract and a schedule of any transaction charges that participants 
may face. Providers that offer multiple bundled services must separate 
the fees charged under the contract into fees for investment management 
and fees for administration and recordkeeping and must also disclose 
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. Providers will likewise have to 
disclose whether they may benefit from the offering of proprietary 
investment products or those of third parties and must tell employers 
if the investment products offered to the plan are available at other 
price levels. Plan service providers must also provide this detailed 
disclosure statement to employers every year the contract is in place 
and prior to any material modification of the contract. In addition, 
employers must make such statements available to plan participants 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. The amendments 
contained in the bill 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. The bill is forward-thinking, 
pushing electronic delivery as much as possible. 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 fact that 8 in 10 participants do not know what fees are 
charged, there is some good news out there too. According to a survey 
released in April by Deloitte, the International Foundation of Employee 
Benefit Plans, and the International Society of Certified Employee 
Benefit specialists, the average expense ratio for plan investments was 
down from the prior survey period. Clearly, the attention to fees is 
having some impact resulting in lower costs.
  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.

                          ____________________