House Committee Would Require Greater 401(k) Disclosure

Written by: Nick Curabba

The House Committee on Education and Labor this week favorably reported expansive fee disclosure legislation sponsored by Chairman George Miller (D-CA).  The bill that survived the Committee markup was an amended version of Chairman Miller's original 401(k) Fair Disclosure for Retirement Security Act (H.R.3185), and would, among other things, require disclosures from plan service providers to plan administrators and from administrators to participants. The Committee action is the latest move in a ongoing trend among regulators and lawmakers to focus on 401(k) plan fees and disclosure. 

As we have blogged about already, for instance, the Department of Labor is currently in the middle of a three-phase regulatory project focusing on fee disclosure, the SEC has proposed new mutual fund prospectus requirements, and the federal courts are beginning to rule on the first wave of fee disclosure lawsuits.  The Miller bill -- even the scaled back version that the Committee approved -- would go further than any of the other measures to beef up the type and amount of information that would be required to flow between parties in a 401(k) plan. 

The new bill, while still expansive, was significantly moderated from the original version.  In the area of service provider disclosures, for instance, the original bill would have required bundled service providers to break down component service charges into 13 separate categories.  The revised bill requires charges to be separated into three primary buckets, with a fourth catchall category to be defined in greater detail by the Department of Labor.  Disclosure requirements to plan participants remain essentially unchanged from the original version of the bill, although the number of data points required to be shared with participants was reduced.

The modified bill also retained a controversial provision from the original that would require all individual account plans to include a passively-managed index equity fund as one investment alternative in the plan.  Most -- if not all -- Republican members of the Committee had objected to this provision, as had the plan sponsor community.  Somewhat surprisingly, perhaps, was the level of Democratic defection on this point.  During the Committee markup, several Democrats expressed reservations about supporting an index fund mandate, including Rep. Rob Andrews (D-NJ), who chairs the Health, Education, Labor, and Pensions subcommittee and who has established himself as a leader on employee benefit issues.

Rep. Andrews, in fact, offered an amendment to the Chairman's modified bill that would remove the express mandate for an index fund.  His amendment, which was adopted by the Committee, instead amends ERISA sec. 404(c) to require an index fund as a condition of meeting the requirements for a limited fiduciary liability safe harbor.  Republicans questioned whether Rep. Andrews's amendment was simply replacing a de jure requirement with a de facto one, since most plan sponsors will wish to retain 404(c) protection.  That point aside, the Andrews amendment carried the support of the Committee's Democrats -- including Chairman Miller -- and was added to the bill.

The future of H.R. 3185 is somewhat unclear.  Although Chairman Miller has said he plans to push for full House consideration of the measure this year, there is a likelihood that the House Ways and Means Committee will wish to exert its independent jurisdiction over retirement plans and consider its own legislation.  Chairman Miller said during the hearing that his bill has been drafted exclusively within Title I of ERISA to avoid dual Committee referral, but also acknowledged that Ways and Means Chairman Charles Rangel (D-NY) has indicated interest in drafting legislation.  If the tax writing Committee decides to move forward, the House will likely have a difficult time passing a bill this year, which is already shortened due to the Presidential election. 

More information about H.R.3185 is available on the Committee's website.