A bill advanced by a House subcommittee seeks to make 401(k) participants more aware of plan fees and, hopefully, rebuild confidence in their retirement programs.
The 401(k) Fair Disclosure for Retirement Security Act (H.R. 1984) will aid employees in managing their investment options by giving them access to information previously sealed or difficult to obtain. Action is heating up on Capitol Hill because, despite recent market setbacks, two-thirds of workers with retirement plans still rely on 401(k)s as their primary retirement safety net and need help understanding their returns.
“When a worker spends most of their lifetime investing their hard-earned dollars into an account for their retirement and later discover they were being charged fees that contributed to a significant loss of their nest egg, they understandably lose trust and confidence in the system,Ā said U.S. Rep. Rob Andrews (D-NJ), chairman of the House Subcommittee on Health, Employment, Pensions and Labor and cosponsor of H.R. 1984. ĀThe lack of transparency in the 401(k) system is unacceptable and must end now.”
The stakes are even larger than most participants realize, and the push for reform may heighten with awareness that even a 1 percentage point difference in fees can reduce retirement benefits by nearly 20% over the course of a career, according to the U.S. Government Accountability Office. Other estimates show that approximately 80% of workers donĀt know the impact of fees taken out of their 401(k) accounts.
ĀI pleased that the subcommittee moved quickly on this urgent priority,Ā said Rep. George Miller (D-CA), chairman of the full committee and sponsor the bill. ĀAmericans should be entitled to clear and complete information on the fees taken from their hard-earned retirement savings.Ā
In detail, the act would:
ā¢Ensure that workers receive principal information, including information on risk, return, complete fees, and investment objectives before electing a plan;
ā¢Insist that all fees that are charged against a workerĀs 401(k) account be included under one number in the participants quarterly statement;
ā¢Require all service firms to expose all fees workers are charged on all investment options into four categories: administrative fees, investment management, transaction, and other fees;
ā¢Make the offering of at least one low-cost index fund mandatory in order to receive protection against liability for holdersĀ investment losses;
ā¢Require service providers to make financial relationships public so companies that sponsor 401(k) plans can be sure that there are no conflicts of interest;
ā¢Give the Labor Department authority to enforce new disclosure rules and fine service providers who violate them.
The 401(k) Fair Disclosure for Retirement Security Act is endorsed by a multitude of consumer and shareholder rights groups, including the AARP, Consumer Federation of America, and the Pension Rights Center. For a complete list, click here. In general, supporters hope the measures will improve 401(k) communication and empower plan participants to make more informed decisions affecting their investment returns.
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