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Senior Citizen Politics
Kohl, Harkin Senate Bill to Force Disclosure of 401K
Management Fees
Senators say high fees can take thousands from retirement savings
 Dec. 27, 2007 - Sen. Tom Harkin (D-IA) and Sen.
Herb Kohl (D-WI), Chairman of the U.S. Senate Special Committee on
Aging, introduced legislation this month to protect American workers by
ensuring they can access information on the cost of 401 (k) plan
management fees. The Harkin/Kohl Defined Contribution Fee Disclosure Act
of 2007 would require 401(k) plan providers to disclose all fees so that
workers saving for retirement can make a fully informed decision about
which plan is best for them, according to Sen. Kohls office.
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Choosing a plan with a lower management fee can
boost Americans retirement savings by thousands of dollars, says Kohl.
The AARP found that if a 35 year old invested $20,000 in a 401(k) plan
over 30 years, earning a 6.5 percent return and paying 0.5 percent in
fees, that individual would have $132,287. But if their fees increased
to 1.5 percent, only $99, 679 would be left for their retirement a 25
percent reduction in the account balance.
It is absurd that millions of Americans rely on
401(k) plans for their retirement security and yet they arent told what
fees they are paying to maintain these accounts, said Sen. Harkin.
This bill will shed light on the 401(k) selection
process and give Americans more control over their retirement future. In
an economy with more and more defined benefit plans being slashed or
frozen everyday, it is vital that employees have access to all the
information they need to maximize their retirement savings.
I believe there is a basic right for consumers to
clearly know how much products and services are costing them, added
Sen. Kohl.
Disclosure is especially important in the case of
401(k)s, as the slightest difference in fees can translate into a
staggering depletion in savings, greatly affecting ones ability to
build a secure retirement.
Currently, it is difficult for 401(k) participants
to access information on what fees they are being charged and how these
fees affect their final account balance. The Defined Contribution Fee
Disclosure Act helps employees obtain this information in an easily
understandable format by doing the following:
● Increasing the information given to employers
who sponsor 401(k) plans. Employers determine what 401 (k) plans their
employees can choose from.
Therefore, the employers need to have
comprehensive list of all of the fees that they are paying and why. This
information would then be passed on to participants upon request.
● Giving participants information about the
overall levels of fees when they choose investment options and on their
quarterly statement. The pre-selection notice would include other
critical information for plan selection such as historical returns, the
level of risk, and basic investment guidance.
A quarterly statement
would help people to understand over time how much they have paid in
fees, and help them to compare fees against returns.
● Require disclosure of relationships between
all parties with financial interest in the plan. The GAO found that
Labor and plan sponsors also may not have information on arrangements
among service providers that could steer plan sponsors toward offering
investment options that benefit service providers but may not be in the
best interest of participants.
Increasing disclosure of these business
arrangements is key to consumer protection.
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