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Home > BizTimes Daily > Archives > October 24, 2007
Kohl to introduce bill to require 401(k) fee disclosures
Published October 24, 2007 - BizTimes Daily
Today U.S. Senate Special Committee on Aging Chairman Herb Kohl (D-Wis.) held a hearing on the effect hidden 401(k) fees can have on retirement savings and the need for simple and clear disclosure.
Although only established in the 1980s, 401(k) defined benefit plans have become the main retirement savings vehicle for most Americans, covering more than 50 million people and exceeding $2.5 trillion in assets.
Under federal pension law (ERISA), there is no requirement for plan sponsors to provide participants with information on the fees associated with differing investment options. Because most fees are netted from their account balances, most plan participants are unaware of the costs of their plans, Kohl said.
According to a study conducted in July by AARP, only 17 percent of 401(k) enrollees knew that they were paying any fees. Two-thirds of the respondents, or 65 percent, thought they paid no fees for their 401(k) plan.
"I believe there is a basic right for consumers to clearly know how much products and services are costing them," Kohl said. "Disclosure is especially important in the case of 401(k)s, as the slightest difference in fees can translate into a staggering depletion in savings, greatly affecting one’s ability to build a secure retirement."
In conjunction with the hearing, Kohl and Sen. Tom Harkin (D-Iowa) will introduce the Defined Contribution Fee Disclosure Act of 2007 this week. The bill would require complete transparency of 401(k) fees to both employers and participants. The legislation also will enable employers to negotiate with pension fund managers in order to obtain the lowest possible fees for their employees.
The U.S. Government Accountability Office (GAO) recently estimated that a 45-year-old with $20,000 in his 401(k) would have $70,555 at age 65 if he is getting a 6.5-percent return and only paying 50 basis points (0.5 percent) in fees. However, increasing the fees by just 1 percentage point would leave him with only $58,400 at retirement age.
At the hearing, Barbara Bovbjerg, director for education, workforce and income security issues at GAO, gave committee members an overview of the current law governing 401(k) fees, stating that it does not adequately require disclosure of fees and expenses. Michael Kiley, of De Pere, Wis., testified on behalf of the American Society of Pension Professionals & Actuaries (ASPPA) and the Council of Independent 401(k) Recordkeepers (CIKR). Kiley said disclosure would help drive down prices and allow consumers to choose a better product.
