U.S. May Toss Sponsors a New 401(k) Duty

Labor Department proposes requiring companies to tell participants, as early as next year, more about fees and investment options.

In a move that could require additional action by most U.S. companies as early as next year, the Labor Department proposed a rule requiring plan sponsors to provide 401(k) participants with summary information, including about fees and expenses for investment options available under their plans.

The proposed regulation would require sponsors to distribute the investment-related information in a comparative chart or similar format. The department said it had developed a model chart for complying with the requirement, while giving plan fiduciaries the flexibility to design their own charts or comparative formats.

The proposal also would require plan fiduciaries to disclose basic information about the plan and its investment options, such as what alternatives are available under the plan, how to give investment instructions, investment returns and fees and expenses, and provisions for participants to obtain more detailed information. This information would have to be given to participants on a regular and periodic basis.

According to the Associated Press, the Labor Department figures the disclosures would save the estimated 65 million 401(k) plan participants $6.1 billion over 10 years, including $2.3 billion from lower fees as investment providers compete more on cost. The rest of the savings would come from the time participants would save tracking down the fees, which are currently found in a number of separate documents, the AP noted.

The wire service also cited a Government Accountability Office report finding that about 80 percent of participants don’t know how much they pay in fees.

“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 Labor Secretary Elaine L. Chao. “One of the department’s top priorities is improved disclosure to workers that will give them the information they need to make informed investment decisions.”

When completed, the proposed regulation would be effective for plan years beginning on or after next Jan. 1.

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