Lawmakers target hidden 401k retirement plan fees
WASHINGTON (Reuters) - The government should require clearer disclosure of hidden fees eroding the investment returns of millions of Americans' 401(k) retirement plans, lawmakers and pension experts said on Tuesday.
Fees chip away imperceptibly at 401(k) gains because workers get very little information about them, Rep. George Miller, chairman of the House of Representatives Education and Labor Committee, said at a hearing.
"Even a seemingly small difference in the fees that workers pay can make an enormous difference in the overall size of their 401(k) account balance," said the California Democrat.
"Today, because of weak disclosure rules, most workers don't even know how much they are paying in fees," Miller said, adding he does not yet have a legislative timetable.
As part of an effort to tackle middle-class pocketbook issues that Democrats say were neglected before they took control of Congress this year, Miller's committee is taking on the 401(k) fees issue with likely legislation ahead.
More than $2 trillion is invested by U.S. workers in 401(k) plans, named after a section of the U.S. tax code. Money is invested into the plans through pretax payroll deductions. Withdrawals may be made around retirement time.
As U.S. corporations have walked away from traditional pension plans offering workers' guaranteed retirement benefits, 401(k) plans have become key to many workers' retirement plans, along with Social Security, profit-sharing and stock ownership plans and individual retirement accounts, or IRAs.
The Government Accountability Office, the investigative wing of Congress, in November recommended fee disclosure legislation. The GAO said the Labor Department -- 401(k) regulator under 1974's Employee Retirement Income Security Act (ERISA) -- should take action.
Bradford Campbell, acting assistant secretary of the department's Employee Benefits Security Administration, said several initiatives are under way, including a proposal to change an annual reporting form to improve fee transparency.
"We ... hope to publish a final regulation in the next several months," Campbell said in a statement.
California Rep. Howard McKeon, senior committee Republican, said lawmakers should resist overloading investors with too much information, possibly confusing them.
Matthew Hutcheson, an independent pension fiduciary, said 401(k) plans cost three to five percent of plan assets per year to manage.
"That is 1.5 to 3.5 percent more than is reasonably necessary," he said in testimony to be given to the committee.
The most common 401(k) charges are investment fees charged by mutual fund managers to choose securities for plans.
Record-keeping fees are the second-biggest category, with a range of other charges -- audit fees, legal fees, trustee fees, consulting fees -- sometimes assessed, as well.
Under ERISA, little disclosure of these fees is made, Moreover, what disclosure there is comes in piecemeal fashion making plan-to-plan comparisons difficult, GAO said.
Investors in 401(k) plans typically pay fees without ever knowing it, as returns are simply reduced to reflect them.
"Fees charged to participants may be stated in the investment materials, but they remain effectively hidden on an ongoing basis because participants never receive a bill," said Stephen Butler, president of Pension Dynamics Corp.
