401(k) Fair Disclosure for Retirement Security Act
A majority of American workers rely on 401(k)-style plans to finance their retirements. According to an AARP survey, the vast majority of account holders report that they do not know how much Wall Street middle men are taking from their retirement accounts.
These hidden fees can greatly reduce workers’ retirement account balances. In fact, just a 1-percentage-point in excessive fees can reduce a worker’s 401(k) account balance by as much as 20 percent or more over a career. Especially during these difficult economic times, workers need simple and complete information in order to make better educated decisions about their retirement plans.
Workers also deserve investment advice regarding their employer-sponsored retirement plan that is independent and free from any conflicts of interest. Protections against providing conflicted investment advice were watered down by the Pension Protection Act and a midnight proposal rushed through by the Bush administration’s Department of Labor. These actions opened the door for financial services companies to provide advice to employees where they had a direct or indirect financial interest.
The 401(k) Fair Disclosure and Pension Security Act (H.R. 2989), passed by the committee on June 24, 2009, would, among other things, address hidden fees and restore workers' protections against conflicted investment advice. H.R. 2989 would:
- Require 401(k) plans to disclose fees in one dollar figure taken from participants accounts in a worker’s quarterly statement;
- Require 401(k) service providers and plan administrators to disclose fees charged on 401(k) plans broken down into four categories: administrative fees, investment management fees, transaction fees, and other fees;
- Help workers understand their investment options by providing basic investment information, including information on risk, return, and investment objectives;
- Require plan administrators to offer at least one low-cost index fund to plan participants in order to receive protection against liability for participants’ investment losses;
- Require service providers to disclose financial relationships so companies that sponsor 401(k) plans can make sure there are no conflicts of interest;
- Ensure that if workers get investment advice through their jobs, that advice be based on the workers’ needs – not the financial interest of those providing the advice;
- Provide adjustments to pension funding rules to ensure plans can weather the economic crisis without being forced to choose between cutting jobs or freezing plans.