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From Spencer's Benefits Reports: Rep. George Miller (Cal.) has introduced the 401(k) Fair Disclosure for Retirement Security Act of 2007 (H.R. 3185), which would amend ERISA to provide special reporting and disclosure rules for individual account plans (i.e., 401(k) plans) and to establish in the Department of Labor an Advisory Council on Improving Employer-Employee Retirement Practices. The bill was referred to the Education and Labor Committee.
H.R. 3185 would add a new ERISA Sec. 111 to specify that the administrator of a 401(k) plan could not enter into a contract with a service provider unless the plan administrator has received, reasonably in advance of entering into the contract, a written statement that (a) identifies who will be performing services for the plan under the contract; and (b) describes each such service and specifies the expected total annual cost of such services, itemized as to all relevant components of the total cost, including any amounts to be paid to affiliated or other third-party service providers under the contract. The contract would have to itemize (i) any commission for making a sale; (ii) any start-up fees; (iii) expenses for investment management; (iv) expenses for investment advice; (v) estimated trading expenses; (vi) expenses for administration and recordkeeping; (vii) legal fees; (viii) trustee fees; (ix) possible termination or surrender charges; (x) total asset-based fees; (xi)12b-1 fees; and (xii) commissions paid under the Securities Exchange Act of 1934.
In addition, the statement would have to include a written disclosure of the nature of any conflicts of interest of each service provider due to a financial or personal relationship that the service provider may have with the plan sponsor, the plan, or other persons providing services to the plan; and for which the service provider receives a payment for services, including the extent to which the service provider uses its own proprietary investment products and the extent to which payments are received by a service provider for including certain investment options as part of a menu of investment options. The statement also would have to disclose that the share prices of certain mutual fund investments may be different than the retail share price outside of the plan due to the existence of different share classes.
In any case in which services are provided to the plan by any service provider without charge or for fees set at a discounted rate or subject to rebate, the statement would have to include a description of the extent to which, and the amount by which, consideration is otherwise obtained by the service provider, the plan, or the plan sponsor for such services, directly or indirectly, by means of any charges against the accounts of the participants. The bill would direct the Department of Labor to issue a model statement that would satisfy the requirements of the legislation.
As specified by H.R. 3185, service providers would have to furnish an updated written statement to the plan administrator at least annually, and within 30 days of any material change in the information provided in the statement. The plan sponsor or plan administrator would have to provide participants a copy of any statement within 30 days after receipt of a written request, and would have to post a copy of such statement on any intranet Web site maintained by the plan sponsor. These requirements would apply with respect to any contract for services only if the total cost for such services under the contract would equal or exceed $1,000.
H.R. 3185 also would require the administrator of an individual account plan that permits a participant to exercise control over the assets in his or her account to provide the participant with respect to each plan year a notice of the investment options available for election under the plan. This notice would have to be provided at least 15 days prior to (a) the beginning of the plan year; and (b) the effective date of any material change in investment options, or, if later, on the date on which the participant commences participation in the plan.
Furthermore, H.R. 3185 would amend ERISA Sec. 402 to require an individual account plan that permits a participant to exercise control over the assets in his or her account to include at least one investment option that is a nationally recognized market-based index fund and that offers a combination of historical returns, risk, and fees that is likely to meet retirement income needs at adequate levels of contribution. The bill also would establish an Advisory Council on Improving Employer-Employee Retirement Practices.
In comments submitted to the Department of Labor’s Employee Benefits Security Administration (EBSA), 12 employer organizations have made joint recommendations for clear and cost-efficient requirements regarding disclosure of fees and other information in participant directed retirement plans, such as 401(k) plans. The organizations submitted their comments in response to an April request for information issued by the EBSA.
The recommendations endorsed by all 12 organizations are as follows:
The organizations approving these recommendations are the following:
American Bankers Association
American Benefits Council
American Council of Life Insurers
Committee on Investment of Employee Benefit Assets
ERISA Industry Committee
Financial Services Roundtable
Investment Company Institute
National Association of Manufacturers
Profit Sharing/401(k) Council of America
Securities Industry and Financial Markets Association
Society for Human Resource Management
U.S. Chamber of Commerce
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
Visit our News Library to read more news stories.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
Visit our News Library to read more news stories.
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