Labor Department Backs Disclosure Document
July 26, 1999
The U.S. Department of Labor in conjunction with the Investment Company Institute and other trade groups is urging employers to use a new form that requires 401(k) providers to make detailed disclosures about their fees.
The 401(k) Plan Fee Disclosure Form, introduced by the department July 15, calls on 401(k) providers to list investment management and administrative expenses for their services. Employers and 401(k) plan providers are not required to use the form, Department of Labor officials said. However, the form should increase 401(k) expense disclosure, particularly for employers at small companies, said mutual fund executives and consultants.
Smaller firms - which the Department of Labor defines as those with fewer than 100 participants in their 401(k) plans - usually do not hire consultants to evaluate 401(k) plans, consultants and executives said. Consultants normally identify and evaluate the reasonableness of fees for larger 401(k) plans, they said.
"I suspect either plan sponsors that aren't working with a consultant or smaller plan sponsors will really come to rely on it," said Clare Bergquist, a member of the retirement plan services unit at Strong Funds of Menomonee Falls, Wis., of the new form. "I think it will evolve into a very good tool."
Fund executives have long complained that alternative 401(k) investments, such as limited partnerships, have not been subject to the same fee disclosure requirements as mutual funds. The money management expense disclosure on the form is similar to information now included in mutual fund prospectuses. The 10-page form seeks such routine information as management fees and other charges such as expenses associated with compliance, employee loans from 401(k) balances and education expenses.
The fee disclosure form should make it easier for employers to compare the expenses of competing 401(k) plan providers, Department of Labor officials said. Approximately 32 million people work for companies that do not have defined contribution plans now, Department of Labor officials said. The fee disclosure which small employers now receive tends to be inconsistent from provider to provider, Department of Labor Officials said.
Ann Mahrdt, a senior consultant at the Spectrem Group, a consulting firm for investment products in San Francisco, praised the Department of Labor's efforts on increased fee disclosure. Fees, however, have not been the key factor for smaller employers in selecting 401(k) plan providers, Mahrdt said. In the small plan market, employers tend to rely on financial advisors for selecting plans, she said. Employers also pay close attention to services which the plans offer, such as daily pricing, Mahrdt said.