The House Education and Labor Committee has approved a bill that would require 401(k) plan providers to provide clear, complete information about the fees they charge.

George Miller

The committee approved the 401(k) Fair Disclosure and Pension Security Act last Wednesday by a vote of 29 to 17. The law would provide information on how much in fees is taken from employees’ retirement accounts. It is the fifth such bill to be introduced in Congress.

“It is beyond time that American workers have basic and clear information on costs and choices contained in their 401(k) plan,” said committee chair George Miller, D-Calif. “The economic collapse has fueled Americans’ concerns about whether they will have enough savings to last them throughout retirement. This bill will give Americans a fighting chance to strengthen their retirement and increase our nation’s future economic security.”

According to the Government Accountability Office, even a small difference in the fees that workers pay can make an enormous difference in the overall size of their 401(k) account balance. A 1 percentage-point difference in fees can reduce retirement benefits by nearly 20 percent.

The version of H.R. 2989 adopted by the committee would require 401(k) plans to disclose fees taken from participants’ accounts in a single dollar figure in a worker’s quarterly statement. It would also require service providers and plan administrators to disclose the fees charged on 401(k) plans in four categories: administrative fees, investment management fees, transaction fees and other fees.

In addition, the bill would require plans to provide basic investment information to workers, including information on the fund’s risk, return and investment objectives. It would also require plan administrators to offer at least one low-cost index fund to plan participants in order to receive protection against liability for the participants’ investment losses.

The bill would also require service providers to disclose their financial relationships so companies that sponsor 401(k) plans could make sure there are no conflicts of interest, and that if workers get investment advice through their jobs, the advice would be based on the workers’ needs and not the financial interest of those providing the advice. The bill would also provide adjustments to pension-funding rules to help retirement plans weather the economic crisis.