Previously I wrote about the efforts of congress to provide requirements for additional disclosure of 401(k) fees.  They are at it again, this time through introduction of H.R. 1984, The 401(k) Fair Disclosure for Retirement Security Act.  Introduced on April 21, 2009, the Act requires additional disclosure of fees charged to 401(k) accounts.  This is not something that I think plan sponsors should fear, but there are some specific provisions of the Act that they should pay attention to.

First, the Act creates an affirmative obligation to disclose fees even where fee information is generally available from other sources.  Financial service providers would be required to disclose all costs and fees associated with each investment to both plan sponsors and participants.  A quarterly statement to participants will be issued listing the total contributions, earnings, returns and all fees subtracted from an account.  Before enrollment, participants would receive a statement listing the investment options including historical returns and fees assessed for each option.  In addition, financial service provides would have to disclose any financial relationship or potential conflict of interest with the plan sponsor.

Second, the Act requires that plan sponsors offer at least 1 low-cost index fund that tracks a broad market index.  Because index funds are not actively managed, it is assumed they would have lower costs and fees associated with their investment.  Some advisors have expressed concerns that this provision will be tantamount to a government seal of approval of index funds as an acceptable investment option.  However, this requirement does fit squarely in line with prior discussions over qualified default investment option which many plans have adopted.

Even if this Act does not eventually become law, I believe it illustrates how important it is for plan sponsors to be actively aware of the administration costs associated with their plans, and particularly the fees charged by service providers.  Sponsors should always be looking for the best service provider, but lower costs have to be a concern.  Plan sponsors would be wise to take this opportunity to review their plans and fees charged to make sure they are adequately disclosed, that they are being properly charged and that they are not excessive.