Proposal to improve 401 fee disclosure

HR Magazine, Sept, 2008 by Stephen Miller

The U.S. Department of Labor (DOL) has announced a proposed regulation to make it easier for participants in 401(k)-type defined contribution plans to make informed retirement savings decisions.

The proposal would require providing plan participants with concise information about their investment options, including fee and expense information, along with performance data and relevant benchmarks, using comparative charts or similar formats. The information would be required for all types of investments used in the plans.

"Our proposal is consistent with public consensus that workers need clear and concise information, not dozens of pages of 'legalese,' about the investment options available under their plans, and that they would benefit greatly from having that information in a comparative format," said U.S. Secretary of Labor Elaine L. Chao.

Under the proposal, plan fiduciaries must provide participants and beneficiaries with specified plan and investment information, including fee and expense information. Generally, this information must be provided when a participant becomes eligible for the plan, and annually thereafter.

The centerpieces of the proposed regulation include these disclosures:

* A requirement to provide investment-related information in a comparative chart or similar format. As part of the proposal, the department has developed a model chart (see below). Plan fiduciaries also can design their own charts or comparative formats.

Model Comparative Chart: Fees and Expense Information

Name/Type of           Total Annual  Shareholder/Shareholder-type
Option                   Operating   Fees **
                        Expenses *

Stock Funds

A. Fund/S&P 500 Index      0.18%     $20 annual service fee assessed
                                     for accounts holding less than
                                     $10,000. May be waived in certain
                                     circumstances.

B. Fund/Large Cap          2.45%     4.25% deferred sales charge
                                     against amounts redeemed within
                                     12 months of purchase.

C. Fund/International      0.79%     5.75% sales charge against
Stock                                amounts invested.

D. Fund/Mid Cap ETF        0.20%     4.25% sales charge against
(exchange traded                     amounts invested or redeemed.
fund)

Bond Funds

E. Fund/Bond Index         0.50%     n/a

Other

F. Fund/GICs               0.46%     10% charge against amounts
(guaranteed                          withdrawn within 18 months of
investment                           initial investment.
contracts)

G. Fund/Stable Value       0.65%     Dollars withdrawn may not be
                                     transferred to a competing
                                     fund for 90 days after
                                     withdrawal.

H. 200X GIC                n/a       12% charge against amounts
                                     withdrawn before maturity.

* Total Annual Operating Expenses are ongoing expenses paid directly
from your investment in this option each year, expressed as a
percentage of the value of your investment in the option (e.g., expense
ratio).

** Shareholder/Shareholder-type Fees are fees paid directly from your
investment in this option (e.g., sales loads, sales charges, deferred
sales charges, redemption fees, exchange fees, account fees, purchase
fees, transfer or withdrawal fees, surrender charges, contract
maintenance fees, and mortality and expense charges).

Source: U.S. Department of Labor's proposed regulation, Fiduciary
Requirements for Disclosure in Participant-Directed Individual
Account Plans, appendix.

* A requirement that plan fiduciaries disclose basic information about the plan and its investment options, such as what options are available under the plan, how to give investment instructions, investment returns, and how to obtain more detailed information.

The proposal requires that, on a quarterly basis, participants and beneficiaries be given statements of the dollar amounts charged during the preceding quarter to their accounts for administrative services, and general descriptions of the services to which the charges relate, such as charges for processing loans, qualified domestic relations orders or investment advice.

The statements should be specific enough to inform users of the actual charges to their accounts and enable them to distinguish the administrative services from other charges and services that may be assessed against their accounts.

By Stephen Miller, an online editor/manager for SHRM.