WASHINGTON – At a Senate hearing today, the Pension Rights Center called for increased disclosure of the fees associated with 401(k) plans. Speaking before the Committee on Health, Education, Labor, and Pensions, Center Board member Olena Berg Lacy noted that Government Accountability Office study has shown that every one percent increase in the amount of fees workers pay for their 401(k) plans can reduce an individual’s retirement savings by as much as 17 percent over a 20-year period. For workers whose sole source of retirement income aside from Social Security is a 401(k), the amount lost to fees could be devastating to their retirement security.
Lacy, former head of the Department of Labor’s Employee Benefits Security Administration, stated that the negative impact of fees on retirement accounts “is greatly magnified when markets are in turmoil and participants are incurring losses in their accounts.” Given the current economic environment, it is more important than ever that workers have an accurate assessment of their expected retirement assets. Knowing how much they are paying for their 401(k) plans is a crucial part of that assessment
In her testimony Lacy recommended greater disclosure of two types of fees: those that plan service providers charge to employers who sponsor plans, and those that plan sponsors charge to employees. “Because fees vary substantially for very similar investment products and services, it is critical that such information be provided but there is no explicit legal obligation for service providers to do so,” she said, pointing out that small- and medium-sized employers in particular may have difficulty in getting the information they need to make informed decisions.
In order for it to be helpful, the information given to plan participants about the fees associated with their 401(k) plans needs to be “clear, concise, and readily accessible,” said Lacy. By giving workers fee information in language that they can easily understand, workers will be able to make more informed choices about their 401(k) investments and exercise more control over their own retirement security.
Lacy told the Committee that fee disclosure regulations recently proposed by the Department of Labor would “significantly improve the transparency of fees,” but she noted that they fall short in key respects. These include the fact that the proposed regulations do not require plans to disclose administrative fees if they are “bundled” with investment management fees.
Read Olena Berg Lacy’s statement [PDF] from the hearing.
Read the Center’s comments [PDF] on the proposed regulations.