Should corporate executives and benefits managers be sweating or hailing proposed new rules mandating the reporting of fees, expenses and performance of company-offered pension programs? That may depend on whether they did their best to provide employees with low-cost plans.
Certainly, there's room for more disclosure concerning the more than $2.5 trillion invested in DC plans. Since 2006, some 20 companies–most recently Wal-Mart — have been hit with employee class-action lawsuits alleging they were bilked by retirement programs that, unknown to them, were charging "unnecessary or excessive" fees. In Wal-Mart's case, employees claim they were charged $60 million in excessive fees over the course of 10 years and that the company failed in its fiduciary responsibility to disclose those costs. Wal-Mart calls those claims "just speculation," and argues that ERISA rules don't require it to offer the cheapest plans available, or to base its choice of retirement plans solely on price.
Last spring, a House committee approved a bill authored by Rep. George Miller (D-Calif.) that would substantially expand pension disclosure requirements, but with opposition from the president and GOP, it's unlikely to go forward. The Department of Labor, however, in July published a proposed new disclosure rule. Public comment is due by Sept. 8 and it would go into effect this January. If not significantly altered, the measure would substantially increase company disclosure concerning 401(k) fees, expenses and performance.
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"This should be good for employers. Liability generally goes down as disclosure improves," says Matt Hutcheson, an independent benefits consultant who testified on the Miller bill. "I've heard employers say they've been told by investment industry lobbyists to oppose disclosure rules, but I can't see any reason why they should," he adds.
Congressional sources, however, say the new rule's impact could be more complicated. Some companies have used their large pools of employee retirement cash as leverage to gain favorable treatment–even lower financing terms–from financial institutions, and may not want to have to explain to employees why their plans are more costly than they might have been.
This has some managers worried that while increased disclosure about fees, expenses and plan performance history could reduce liability going forward, it could lead to a rash of lawsuits as employees learn what they've been charged already.
Meanwhile, if Democrats gain seats in Congress in November, it's likely Miller's bill, requiring even more disclosure will be back next year, with a much
better chance of passage.
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