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Heightened Regulatory Focus On Plan Fees

The recent 401(k) class action lawsuits come on the heels of other judicial and regulatory actions that target 401(k) fee transparency. A report released by the Government Accountability Office on November 30, 2006, recommends legislative changes that would impose new fee disclosure requirements on both plan sponsors and service providers. In addition, the Department of Labor issued guidance in May 2005 that outlines questions plan fiduciaries should ask when selecting pension consultants. Those questions are designed to help fiduciaries ferret out whether the advice they receive is tainted by conflicts of interest. This could be the case, for example, if the investment consultant receives compensation from an investment fund in exchange for recommending a fund.

More recently, the DOL announced that it will propose changes to the regulations that govern arrangements between plans and their service providers, calling those regulations “outdated.” The revised regulations are expected to be released this Spring. Along with that initiative, the DOL has proposed changes to the annual report (Form 5500) that plans must file. Those changes would require plan administrators to disclose indirect fees paid to service providers, including revenue sharing payments, on the annual report.

Congress also is getting into the act. Representative George Miller of California, Chair of the House Committee on Education and Labor, has scheduled hearings to discuss 401(k) fees as part of a broader initiative to examine issues related to the financial security of older Americans.