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Business Gears Up for 401(k) Warfare

Congress is on a collision course with the 401(k) industry.

Democrats are expected to push for new federal disclosure requirements about the costs of individual 401(k) retirement plans next year, while Republicans and the industry will fight back, arguing that those requirements create undue burdens for business and overwhelm plan holders with information.

Lawmakers, including House Education and Labor Chairman George Miller (D-Calif.) and Sen. Tom Harkin (D-Iowa), have been pushing for more public disclosure of 401(k) fees, proposing legislation this year to expand disclosure. Both Senators are planning to reintroduce those bills in the next Congress.

Miller’s bill is the 401(k) Fair Disclosure for Retirement Security Act (H.R. 3185), and Harkin’s bill is the Defined Contribution Fee Disclosure Act (S. 2473). Neither bill made it to the House or Senate floor this session.

Harkin said in a statement, “It is absurd that millions of Americans rely on 401K plans for their retirement security and yet they aren’t told what fees they are paying to maintain these accounts. We need to shed light on the 401K selection process and give Americans more control over their retirement future.”

An aide to Miller added, “Strengthening workers’ retirement security has been — and continues to be — a key priority for Chairman Miller.

“There is a clear and urgent need to better help workers save for retirement, in part by making sure they have complete information about their retirement savings and the various fees they are being charged.”

Many Republicans and various industry groups, however, say such proposals may go too far. In particular, groups such as the Committee on the Investment of Employee Benefit Assets, the Financial Services Roundtable and the Profit Sharing/401k Council of America argue that too much information will in fact overwhelm employees with information, making their decisions harder, not easier. Also saddling small businesses with additional paperwork could potentially lead them to drop 401(k) plans altogether.

“Any reform effort must be considered carefully, weighing positive goals against negative consequences,” said an aide to Rep. Howard McKeon (R-Calif.), ranking member of the Education and Labor Committee. “The last thing we want to do is drive employers out of the system and limit options for workers.”

A Senate Republican source agreed, saying, “Costs and the requirements for investor education and advice are going to create obstacles to reaching an agreement.”

But proponents of such legislation remained optimistic that a deal can be reached next year. The differences between the parties are fairly small and it is really more of an issue of educating Members than anything else, one Senate Democratic aide said.

Even critics agree that it was likely some sort of 401(k) disclosure rule changes would be passed. An official with CIEBA, which represents pension fund managers, conceded it would be very hard for lawmakers to oppose such a bill because it’s perceived as providing greater transparency.

Industry groups say Miller has also been willing to work with them; an official with the Profit Sharing/401K Council of America, which represents employers, said Miller has been “very responsive to many of the concerns we had” with the bill.

Meanwhile, industry groups are also concerned that Miller’s bill would require employers to include at least one low-cost option, known as an index fund, in their 401(k) plans and to provide a breakdown of the fees for bundled benefits to plan participants.

An official with the Financial Services Roundtable, which represents the financial services industry, said establishing an index fund wrongly leads plan participants to believe a government-mandated option is a better alternative than the other plans offered by the employer. A government-sponsored option has never been successful, the CIEBA source said, noting such plans at the state level have failed.

Critics also say requiring information on each benefit in a bundled 401(k) package provides additional details that plan participants do not need, while increasing the burdens on plan providers and employers.

Groups such as the Financial Services Roundtable are concerned that breaking out these bundled benefits could reveal plan providers’ proprietary data.