There are two good reasons why the odds are in favor of better disclosure of 401(k) fees: one, a mounting number of lawsuits by participants against plan sponsors over excessive fees; and two, Congress is now getting involved. But what form the increased disclosure takes is still up for grabs, and as one might expect, there is nothing close to consensus about what's necessary.
The American Society of Pension Professionals & Actuaries (ASPPA) recommends that Congress should require all companies servicing 401(k)s to provide full and complete disclosure of fees. This will ensure that sponsors and participants have the opportunity to compare fees of various service providers, which will lead to a more competitive market and reduced costs. The Government Accountability Office has also backed supporting full disclosure.
But not everyone thinks more is better; in fact, some suggest that more disclosure just may be more confusing, particularly in the case of information for individuals. For instance, if a plan participant finds out that one provider is more expensive than another, should he switch plans? But then what if the more expensive plan is performing much better? Will it be a net win to move? If individuals are unable to really work with the information, will the plan sponsor become more vulnerable to legal action?
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David Wray, president of the Profit Sharing/401(k) Council of America (PSCA), doesn't want legislation at all–although he wants more disclosure. Wray would like for the Labor Department to prescribe disclosure, particularly involving administrative costs borne by companies. "Labor has power under ERISA and a flexibility that legislation doesn't provide," says Wray. "And while I don't think [a lot] more fee disclosure for individuals would help, I think fee disclosure to companies would bring a lot more competition into the marketplace." Wray is in luck since the new 5500 form must be filed annually with the government by each plan sponsor. However, the plan provider must complete the form for the sponsor.
Whether we see full or partial disclosure, almost everyone agrees on one point: The disclosure that is eventually made must be made transparent and comparable among providers.
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