On April
21, 2009, Representative George Miller (D-CA) introduced
the 401(k) Fair Disclosure for Retirement Security Act
of 2009 (the Act). This legislation would require additional
disclosure to plan sponsors and participants. It
is similar to the legislation that was approved by the
House Education and Labor Committee in April 2008.
Disclosure
to Plan Sponsors
The Act
would prohibit plan administrators of ERISA defined
contribution (DC) plans from contracting with a service
provider unless the plan administrator received the
following information not less than 10 days before entering
into the contract:
- A description
of each service for the plan.
- The expected
cost of providing the services, including a reasonable
allocation of the charges for plan administration
and recordkeeping, transaction-based charges, charges
for investment management, and any other charges.
Any estimated costs could be based on prior year’s
experience.
- Any conflicts
of interest due to personal, business or financial
relationship between the service provider and the
plan, plan sponsor, or plan administrator.
Disclosure
to Plan Participants
The plan
administrator of a DC plan that allows participants
to direct investments and has chosen to comply with
ERISA 404(c) would be required to provide certain information
to participants each year at least 10 business days
prior to the start of participation or the effective
date of any investment option change. The information
must include for each available option:
- A disclosure
of all fees assessed the participant’s
(or beneficiary’s) account.
- The name,
risk level, and investment objective and strategies.
- Whether
each option is diversified to minimize the risk of
large losses.
- Whether
the investment option is actively or passively managed.
- Where
plan participants can obtain additional plan and investment
information.
- A statement
that the investment election should be selected not
only based on the level of fees but also on the level
of risk and historical returns.
The disclosure
must include a plan fee comparison chart that compares
actual services and investment charges for four categories
of charges:
- Charges
that vary by investment option.
- Charges
that are a percentage of total assets, regardless
of the investment option chosen.
- Administration
and transaction-based charges.
- Any other
charges assessed the participant.
Actual or
estimated fee charges must be included with the quarterly
benefit statement furnished to participants.
DC plans
that comply with ERISA 404(c) generally must also include
as an investment option at least one mutual fund which
is designed to match the performance of the United States
equity market and/or bond market. The fund must offer
a combination of historical returns, risk, and charges
that is likely to meet retirement income needs at adequate
levels of contributions and may not be endorsed by the
government or the plan sponsor. |
