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48–716 PDF 2009

H.R. 1984, 401(k) FAIR DISCLOSURE FOR 

RETIREMENT SECURITY ACT OF 2009 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH, 

EMPLOYMENT, LABOR AND PENSIONS 

COMMITTEE ON 

EDUCATION AND LABOR 

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD IN WASHINGTON, DC, APRIL 22, 2009 

Serial No. 111–14 

Printed for the use of the Committee on Education and Labor 

( 

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/education/index.html 
(II) 

COMMITTEE ON EDUCATION AND LABOR 

GEORGE MILLER, California, Chairman 

Dale E. Kildee, Michigan, Vice Chairman 

Donald M. Payne, New Jersey 

Robert E. Andrews, New Jersey 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Lynn C. Woolsey, California 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Dennis J. Kucinich, Ohio 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Susan A. Davis, California 

Rau ́l M. Grijalva, Arizona 

Timothy H. Bishop, New York 

Joe Sestak, Pennsylvania 

David Loebsack, Iowa 

Mazie Hirono, Hawaii 

Jason Altmire, Pennsylvania 

Phil Hare, Illinois 

Yvette D. Clarke, New York 

Joe Courtney, Connecticut 

Carol Shea-Porter, New Hampshire 

Marcia L. Fudge, Ohio 

Jared Polis, Colorado 

Paul Tonko, New York 

Pedro R. Pierluisi, Puerto Rico 

Gregorio Sablan, Northern Mariana Islands 

Dina Titus, Nevada 

[Vacant] 

Howard P. ‘‘Buck’’ McKeon, California, 

Senior Republican Member 

Thomas E. Petri, Wisconsin 

Peter Hoekstra, Michigan 

Michael N. Castle, Delaware 

Mark E. Souder, Indiana 

Vernon J. Ehlers, Michigan 

Judy Biggert, Illinois 

Todd Russell Platts, Pennsylvania 

Joe Wilson, South Carolina 

John Kline, Minnesota 

Cathy McMorris Rodgers, Washington 

Tom Price, Georgia 

Rob Bishop, Utah 

Brett Guthrie, Kentucky 

Bill Cassidy, Louisiana 

Tom McClintock, California 

Duncan Hunter, California 

David P. Roe, Tennessee 

Glenn Thompson, Pennsylvania 

Mark Zuckerman, Staff Director 

Sally Stroup, Republican Staff Director 

SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS 

ROBERT E. ANDREWS, New Jersey, Chairman 

David Wu, Oregon 

Phil Hare, Illinois 

John F. Tierney, Massachusetts 

Dennis J. Kucinich, Ohio 

Marcia L. Fudge, Ohio 

Dale E. Kildee, Michigan 

Carolyn McCarthy, New York 

Rush D. Holt, New Jersey 

Joe Sestak, Pennsylvania 

David Loebsack, Iowa 

Yvette D. Clarke, New York 

Joe Courtney, Connecticut 

John Kline, Minnesota, 

Ranking Minority Member 

Joe Wilson, South Carolina 

Cathy McMorris Rodgers, Washington 

Tom Price, Georgia 

Brett Guthrie, Kentucky 

Tom McClintock, California 

Duncan Hunter, California 

David P. Roe, Tennessee 
(III) 

C O N T E N T S 

Page 

Hearing held on April 22, 2009 .............................................................................. 1 

Statement of Members: 

Andrews, Hon. Robert E., Chairman, Subcommittee on Health, Employment, Labor and Pensions ............................................................................ 1 

Prepared statement of ............................................................................... 3 

Additional submissions: 

Letter, dated April 22, 2009, from Hon. Hilda L. Solis, Secretary, 

U.S. Department of Labor .............................................................. 8 

Letter, dated April 22, 2009, from AARP ......................................... 70 

Kline, Hon. John, Senior Republican Member, Subcommittee on Health, 

Employment, Labor and Pensions ............................................................... 4 

Prepared statement of ............................................................................... 5 

McKeon, Hon. Howard P. ‘‘Buck,’’ Senior Republican Member, Committee 

on Education and Labor ............................................................................... 8 

Prepared statement of ............................................................................... 10 

Questions for the record ........................................................................... 77 

Miller, Hon. George, Chairman, Committee on Education and Labor ......... 6 

Submissions for the record: 

Letter, dated April 24, 2009, from the American Society of Pension Professionals & Actuaries (ASPPA) ...................................... 72 

Prepared statement of the Investment Company Institute (ICI) ... 73 

Statement of Witnesses: 

Borland, Alison, retirement strategy leader, Hewitt Associates, LLC ......... 21 

Prepared statement of ............................................................................... 23 

Bullard, Mercer E., founder, Fund Democracy and assistant professor 

of law, University of Mississippi .................................................................. 12 

Prepared statement of ............................................................................... 15 

Chambers, Robert G., on behalf of the American Benefits Council ............. 38 

Prepared statement of ............................................................................... 40 

Goldbrum, Larry H., Esq., general counsel, the SPARK Institute ............... 42 

Prepared statement of ............................................................................... 44 

Additional submissions: 

‘‘The Case for Employer Sponsored Retirement Plans: Benefits 

and Accomplishments,’’ Internet address to ................................. 47 

‘‘The Case for Employer Sponsored Retirement Plans: Coverage, 

Participation and Retirement Security,’’ Internet address to ..... 47 

‘‘The Case for Employer Sponsored Retirement Plans: Fees and 

Expenses,’’ Internet address to ...................................................... 48 

Memo, dated May 18, 2009, ‘‘Suggested Alternative Approaches 

and Concepts for 401(k) Plans Fee Transparency’’ ...................... 48 

Mitchem, Kristi, managing director, head of U.S. Defined Contribution, 

Barclays Global Investors, N.A. ................................................................... 15 

Prepared statement of ............................................................................... 17 

Onorato, Julian, CEO, ExpertPlan, Inc., on behalf of CIKR, ASPPA and 

NAIRPA ......................................................................................................... 28 

Prepared statement of ............................................................................... 30 

(1) 

H.R. 1984, 401(k) FAIR DISCLOSURE FOR 

RETIREMENT SECURITY ACT OF 2009 

Wednesday, April 22, 2009 

U.S. House of Representatives 

Subcommittee on Health, Employment, Labor and Pensions 

Committee on Education and Labor 

Washington, DC 

The subcommittee met, pursuant to call, at 10:30 a.m., in room 

2175, Rayburn House Office Building, Hon. Robert Andrews [chairman of the subcommittee] presiding. 

Present: Representatives Andrews, Hare, Tierney, Kucinich, 

Fudge, Holt, Kline, Guthrie, and Roe. 

Also present: Representatives Miller and McKeon. 

Staff present: Aaron Albright, Press Secretary; Tylease Alli, 

Hearing Clerk; Jody Calemine, General Counsel; Fran-Victoria 

Cox, Staff Attorney; David Hartzler, Systems Administrator; Ryan 

Holden, Senior Investigator, Oversight; Therese Leung, Labor Policy Advisor; Alex Nock, Deputy Staff Director; Joe Novotny, Chief 

Clerk; Megan O’Reilly, Labor Counsel; Rachel Racusen, Communications Director; Meredith Regine, Junior Legislative Associate, 

Labor; Michele Varnhagen, Labor Policy Director; Mark 

Zuckerman, Staff Director; Robert Borden, Minority General Counsel; Cameron Coursen, Minority Assistant Communications Director; Ed Gilroy, Minority Director of Workforce Policy; Rob Gregg, 

Minority Senior Legislative Assistant; Alexa Marrero, Minority 

Communications Director; Jim Paretti, Minority Workforce Policy 

Counsel; and Linda Stevens, Minority Chief Clerk/Assistant to the 

General Counsel. 

Chairman ANDREWS [presiding]. Good morning ladies and gentlemen. The subcommittee will come to order. We would like to thank 

you for your participation here today. We are honored to have our 

chairman, George Miller, with us; our senior Republican member, 

Buck McKeon, with us. And you will be hearing from each of those 

two leaders in a moment. 

In the news report which discussed the chairman’s efforts to provide more disclosure to American investors and pensioners, an industry representative said that the 401(k) system is about ‘‘freedom 

and choice and personal responsibility.’’ 

We agree completely, which is why the legislation that the chairman has introduced, and that I support, provides people with the 

basis to make an intelligent choice about a decision so important 

to their future. 
2 

It is common to the American experience, that when you buy 

something, the person who sells it to you tells you what gets built 

into the price; tells you what components make up the money that 

you are paying. 

It is kind of sadly ironic that, with an asset as important as 

someone’s retirement account—and for many Americans, their defined-contribution account is their only retirement account—that 

the law does not presently require that investors and workers be 

given the right to know what they are being charged for. 

I think most people would be astonished to hear this—that if 

they went to the people who are managing their retirement savings 

and said, ‘‘I notice that you took $500 out of my $50,000 balance 

last year,’’—or ‘‘$750 out of my $50,000 balance last year’’—‘‘What 

did I get for it?’’—that, under the present law, they don’t have the 

right to know that. 

The bill that the chairman has introduced changes that. And I 

believe it changes it in an effective and useful way for employers, 

and for employees. The consequences of not being able to make an 

intelligent choice about one’s self-directed account are rather extreme. Research done by the General Accountability Office concluded that a 100-basis-point difference—that is to say the difference between a 1.5 percent fee and a 0.5 percent fee—over the 

course of someone’s lifetime, could make a 20 percent difference in 

how much is in their retirement account. 

Let me say that again. The person who pays a fee of 0.5 percent, 

versus a person who pays a fee of 1.5 percent—when she retires, 

may have 20 percent more—the person paying the 0.5 percent may 

have 20 percent more than the person who paid 1.5 percent. 

Now, in some cases, you should pay the point and a half, because 

it is the right thing for you. But the purpose of this bill, and a related discussion that the subcommittee has been having about 

qualified independent investment advice—a subject that we will be 

revisiting—the purpose of this bill is to be sure that the important 

material facts, the critical facts, that are necessary for someone to 

make an intelligent choice are in front of that person. 

The legislation accomplishes three tasks. It requires important 

material disclosure to both employers and employees about what 

the fees are, and what they are going for. It requires the disclosure 

of any conflicts of interest that may exist between the person collecting the fee, and any of the firms that are managing the money 

to which the accounts are given. And, finally, it requires that all 

Americans who are in defined-contribution plans be given the opportunity—practically requires this—but be given the opportunity 

to choose a low-cost index-fund type option, as opposed to an actively managed option. 

No one has to do it. No one is required to do anything. But it 

says that people who wait on tables or teach school or drive buses 

or build houses for a living ought to have the same range of choices 

that wealthier people do, when it comes to how their money is 

managed. 

I think this is eminently reasonable, eminently workable and 

eminently fair. And so when those who believe in this system—and 

I do—say that the 401(k) system is about freedom and choice and 

personal responsibility, we agree completely. People should have 
3 

the freedom to choose what is best for them. They should have 

qualified independent investment advice so they can evaluate what 

is best for them. 

They ought to know the material facts about what is being taken 

out of their account, and why, and by whom, so they can make the 

best choice among the options in front of them. And then, yes, they 

will take personal responsibility for the consequences of their 

choice. 

So the bill that is before the subcommittee, and will—hopefully 

before the full committee shortly—I think furthers that agenda. We 

look forward to hearing from the witnesses this morning, and from 

our colleagues on the committee, as we explore these issues. 

By agreement, would the ranking member of the subcommittee— 

we are going to have statements from the full-committee chairperson and ranking member as well. At this point, I would like to 

yield to whichever of my friends on the Republican side would like 

to speak first. 

Would that be you, John? 

[The statement of Mr. Andrews follows:] 

Prepared Statement of Hon. Robert E. Andrews, Chairman, Subcommittee 

on Health, Employment, Labor and Pensions 

Good morning and welcome to the Health, Employment, Labor and Pensions Subcommittee hearing on the 401(k) Fair Disclosure for Retirement Security Act of 2009 

(HR 1984), which is authored by my good friend and Chairman of the Full Committee, Congressman George Miller. 

Thanks to his leadership, American workers across the country will become more 

aware and better informed about what they should be getting out of their 401(k). 

I am honored to be an original co-sponsor of the bill as well as to working closely 

with the Chairman to craft what he and I strongly believe to be one of the most 

important measures before us today that will help restore worker trust and confidence in our retirement system. 

American workers across the nation have suffered tremendously due to last year’s 

economic downturn; particularly, Americans who were laid off lost a significant 

amount of their retirement savings or both. At the end of 2008, a total of 2.8 million 

American jobs were lost and retirement accounts were reduced by $2 trillion dollars 

overall, shattering the financial goals of many hard-working Americans. 

Those most devastated by the market downturn were those workers nearing retirement who lost close to 30 or more percent of their 401(k) account. Disturbed over 

the market’s unexpected effect over their retirement savings, workers who were impacted the most, as well as many others are further troubled by the lack of transparency of their 401(k) system. When a worker spends most of their lifetime investing their hard-earned dollars into an account for their retirement and later learn 

that they were being charged fees that contributed to a significant loss of their nest 

egg, they understandably lose trust and confidence the system. The lack of transparency in the 401(k) system is unacceptable and must end now. 

The Members of the HELP Subcommittee have before them today a bill that improves the 401(k) system and protects the worker by requiring transparency and 

disclosure of fees to the employers and employees. Under our current 401(k) system, 

there are a numerous instances where employers are not informed, prior to entering 

into an agreement with financial service provider, about the true cost of certain fees 

and services included in their ‘‘bundled service arrangement’’ plan. Equally important, HR 1984 requires disclosure of fees to workers that is both clear and understandable. 

When Jack Bogle, founder of Vanguard, testified before the full committee in February of this year, he made a compelling argument in favor of providing every worker with the option to invest his or her retirement savings in an index fund. Under 

HR 1984, we provide a strong incentive to employers to ensure an index fund option 

is offered to their employers. 

Chairman Miller and I strongly believe the 401(k) Fair Disclosure for Retirement 

Security Act of 2009 moves us in the right direction to improve the 401(k) system. 
4 

You will hear from several of the witnesses on our panel today, who work on a dayto-day basis in the 401(k) world, echo our position. 

Another important solution, which I will address further during the hearing, is 

restoring the conflicted investment advice prohibition under ERISA, while allowing 

workers to receive investment advise that is independent and in the interest of their 

retirement goals. 

I look forward to hearing all the witness testimony and welcome you to the HELP 

subcommittee. 

Mr. KLINE. Thank you, Mr. Chairman. 

Good morning to you all. 

I want to welcome the panel of distinguished witnesses this 

morning. Some of you have been with us before, and some of you 

are new. We are glad to have you all. 

Today, as the chairman indicated, we return to a debate that we 

started in the last Congress, specifically regarding the nature and 

transparency of fees charged to 401(k) plan participants, and how 

best to address that issue. 

The bill that we are discussing today was introduced yesterday. 

So we have not had much chance to look at it. But we have been 

assured on this side that it is the same as the bill was last year. 

Is that correct? Okay. 

That is the assumption that we are working on as we go—— 

Chairman ANDREWS. If the gentleman would yield—my understanding is there are some very, very technical changes, like the 

captions. But, substantively, yes, the bill is identical to last year’s. 

Mr. KLINE. Okay. We will take that at face value, and go forward. 

I hope that as we go forward in the discussion today, and we listen to the testimony of our witnesses, and we engage in the discussion ourselves, that we are, in fact, guided by facts, and not by 

rhetoric. Clearly, the economy is in great trouble. We are in a recession. The value of people’s savings, whether it is retirement or 

education, or anything that they have put away, has fallen dramatically. 

But I hope that we recognize that the tumbling economy is behind this loss in value, and not 0.5 percent or 1 percent or 1.5 percent fee, which works out to, for most 401(k) holders, a medium 

amount of just over $300 a year. And we have had people who have 

lost thousands and tens of thousands of dollars. And, frankly, it is 

not because of fees. 

American workers are rightly concerned. And we have important 

work to do in this Congress, and in the government to address 

their concerns on how to strengthen their savings and give them 

more options. We have, for example, on our side of the aisle—we 

are introducing, today, legislation that will address some of those 

concerns, allowing people with 401(k)s to not be forced to withdraw 

their savings at 701⁄2, and extending that for another couple of 

years—so we are not forcing people to withdraw savings when the 

market is perilously low. 

I think we have real issues out here. This is an important debate. I am look forward to hearing from the witnesses. I would just 

ask all of us to focus on the facts. We have got real experts here. 

And, Mr. Chairman, I ask unanimous consent that my statement 

be entered in its entirety. 
5 

Chairman ANDREWS. Without objection. 

[The statement of Mr. Kline follows:] 

Prepared Statement of Hon. John Kline, Senior Republican Member, 

Subcommittee on Health, Employment, Labor, and Pensions 

Good morning, and welcome to our distinguished panel of witnesses. Some of you 

are making a return appearance before the Committee, and we appreciate your efforts to continue to provide us with your expertise on issues of such national importance. Others are joining us for the first time, and we look forward to your new perspectives. 

We return today to a debate we started in the last Congress, specifically regarding 

the nature and transparency of fees charged to 401(k) plan participants, and how 

best to address that issue. We have before us this morning a bill that was introduced yesterday—providing insufficient time for staff on our side—not to mention 

the witnesses before us this morning—to review in any sort of detail. Republican 

staff has been advised that the bill we are discussing is substantively identical to 

the fee disclosure legislation we voted to report out of this Committee in April of 

last year—an amended version of the bill originally introduced by Chairman Miller. 

On that point, Mr. Chairman, I take you and your staff at face value, and accept 

as a matter of faith that we are discussing materially the same bill that received 

a vote in Committee last year. 

As we take up this debate, let me say first that we must be guided this morning 

by facts—not rhetoric. In previous hearings, we’ve been painted a sinister picture 

of greedy financiers ‘‘raiding’’ employees’ 401(k) plans and robbing them blind 

through exorbitant pension fees. 

Mr. Chairman, I submit we stick to the data. When you run the numbers, an individual with an average 401(k) account balance would have paid a median total of 

pension fees of roughly $346 per year. Those with lower-than-average balances— 

such as lower-income workers—would, obviously, pay even less. I welcome a fair debate about the appropriateness and transparency of pension fees—and I hope we 

can proceed today without hyperbole or fear-mongering—in either our language or 

our action. 

In the same vein, I would encourage my colleagues to avoid grandstanding and 

posturing here this morning. Specifically, I would hope none of us yields to the 

temptation to characterize the dramatic decline in many workers’ 401(k) plans as 

simply an issue of ‘‘fee disclosure.’’ 

American workers and retirees are justly upset and frightened by the dramatic 

effect the market downturn has had on retirement savings. But we do no one a service—indeed, we do a great disservice—to suggest the cataclysmic failure in our markets are no more than a function of so-called ‘‘hidden’’ fees or corporate raiders. The 

dramatic loss in retirement savings was not caused, nor would it have been avoided, 

by the difference of a fraction of a percent in an investment fee. 

Mr. Chairman, you may recall that debate on this bill last year generated substantial concerns from committee members on both sides of the aisle. I hope that 

as we start the process fresh this year we are both willing and able to work together 

to forge common ground on how we might improve pension fee disclosure under 

ERISA. As I said during our markup last year, I stand ready and willing to join 

you in this effort. 

Indeed, as we address our retirement system more broadly, I hope we explore genuine efforts to help Americans rebuild their 401(k) nest eggs, as packages brought 

forward by our Republican Leadership—including the Savings Recovery Act, which 

is being introduced today—are prepared to do. Among its provisions, our bill would 

enable seniors to keep more of their retirement savings by further suspending the 

mandatory withdrawal that requires a certain portion of retirement savings to be 

withdrawn after an individual turns 701⁄2 or retires. This provision protects the investments of seniors and retirees at a time when the value of their accounts is low— 

and is just one of the many factors worthy of discussion as we consider how to help 

Americans rebuild their savings. 

That said, we have an excellent panel of witnesses here before us this morning, 

and we should hear from them directly. I thank the gentleman, and yield back my 

time. 

Chairman ANDREWS. I thank the gentleman from Minnesota. 

In 2006, long before the market had melted down, long before 

loss of retirement savings was an issue on the top of a lot of peo-
6 

ple’s list, the chairman of the full committee—at that time, the 

ranking member of the full committee—had the foresight to ask the 

General Accountability Office to look at the issue surrounding fees 

in defined-contribution accounts. 

That request by Mr. Miller led to a series of reports, which, in 

turn, led to extensive hearings by our full committee and subcommittee, which, in turn, has led to the legislation in front of us 

today. 

So we are very honored that the chairman of our full committee, 

George Miller, is with us. And I would yield to him at this time. 

Mr. MILLER. Thank you, Mr. Chairman, and thank you to the 

subcommittee, for holding this hearing. This is a continuation of an 

effort that, as you know, was started a couple of years ago, to make 

sure that we could keep the 401(k) safe and secure and sustainable, by strengthening the various aspects of the 401(k), so that 

more people would participate, but they would participate with 

greater knowledge. 

As we have come through the various congressional hearings of 

this committee, we have found that the current law does not require disclosure of all fees levied by financial-service firms against 

the participants’ accounts. And I think we will hear again from this 

panel not only a reaffirmation of that fact, but also some very, very 

good suggestions—as I read the testimony yesterday and today— 

some suggestions how even this bill—it is hard for me to believe 

it can be improved—but how even this bill can be improved on 

that—on that item—so that we will have a better-informed—it is 

one thing just to talk openly about choice. The choice itself is the 

value. But choice itself can be confusing if it is not accompanied 

with good information. 

And in this case, that information is very, very important to the 

retirement security of our citizens. As you pointed out, small differences, over a long period of time, can make a huge difference in 

terms of the resources that an individual or a family will have 

available to them for their retirement. 

You mentioned that we could see a 20 percent difference over the 

working life of that individual or that family. A couple of weeks 

ago, the founder of Vanguard, Jack Bogle, testified that the hidden 

turnover costs in many mutual funds could wipe out 75 percent of 

an individual’s investments gains over a lifetime. 

The 401(k) account holder is the last person in the Wall Street 

food chain to get paid. As he said, ‘‘If we can’t get the croupiers 

out of this business, the participants are destined to lose.’’ 

And it is especially difficult time in this country that this hearing, and the previous hearings—is at a time when millions of 

Americans are out of work, struggling to make ends meet. The 

best-laid plans of families—we have all heard it from individuals 

in our districts—have gone up in smoke because of the financial 

scandals and meltdown that have taken place. 

And as they have seen a dramatic reduction in their retirement 

resources—we all have the anecdotal stories of people telling us 

they are going to work longer, they are going to go back to work, 

their spouse is not going to be able to retire, or, simply, that they 

now believe they will not have enough money for retirement. And 
7 

the previous options of going back to work are not available to 

them. 

I think this is an important subject because, as we learn more 

and more about financial services in this country—there is more 

and more concern among the public. 

All of us have just returned from 2 weeks of being home in our 

districts. And the anger, the fear, is palatable for our constituents. 

I think when we understand that we see the manipulation of credit 

card interest rates without the knowledge or the understanding of 

people who are holding those cards—when we understand that almost half of the subprime loans made in California could have been 

prime loans, but there were incentives to getting higher interest 

rates for the securitization of those loans, so the subprime loans 

were issued instead. 

And we now see, again, in predatory lending, where bonuses are 

paid for higher interest rates put on the same people who could 

have had it at a lower interest rate, given their credit rating, and 

the rest of that. 

And that is to suggest that what we now need is transparency 

in the financial-services industry. And the 401(k)s are deeply involved, because that is where they turn to try to build the security 

and the safety for their retirement. 

I believe that this legislation will provide workers with clear and 

complete information about the fees that they are paying. It simply 

requires financial-service firms to tell their account holders how 

much they charge for their services. The bill will also require service providers to inform employers of the cost that the employees 

will bear, and the potential conflicts of interest. Employers should, 

likewise, be armed with accurate data so that they can shop 

around. 

Next, the bill will require that in order for employers to receive 

limited liability against participant losses, that one low-cost index 

fund would be included in the menu of investment options. We 

have heard over and over again that nothing beats the performance 

fees or simplicity of the index fund. This bill will also strengthen 

the Department of Labor’s oversight of 401(k)s. 

I would hope that this bill would not be controversial. I think 

that, as we struggle in the Congress, on almost a daily basis, with 

financial services in this country, that we would now come to understand that transparency is the watchword. It is in every reform 

proposal, whether it is here or in Europe, or anywhere else in the 

world. 

And so that transparency, accompanied with proper oversight, I 

think, will give a better selection of choices and greater security 

and information to workers, as they join the 401(k) savings proposal to try to provide for their retirement. 

Thank you, again, for holding this hearing. 

I look forward to the testimony of all of the witnesses. And I 

thank you for your time and your expertise that you are lending 

to the committee today. 

Chairman ANDREWS. Thank you, Mr. Chairman. 

Without objection, I would like to enter into the record a—a letter from the Secretary of Labor, Hilda Solis, with respect to this 

issue—without objection. 
8 

[The information follows:] 

THE SECRETARY OF LABOR, 

Washington, DC, April 22, 2009. 

Hon. ROBERT E. ANDREWS, Chairman, 

Health, Employment, Labor and Pensions Subcommittee, Committee on Education 

and Labor, U.S. House of Representatives, Washington, DC. 

DEAR CHAIRMAN ANDREWS: Thank you for your leadership in protecting American 

workers’ savings in section 401(k) plans. I commend you for focusing attention on 

this important issue by scheduling a hearing on the ‘‘401(k) Fair Disclosure for Retirement Security Act of 2009’’ and I very much look forward to 

working with you to formulate the best approach to protecting the hard earned 

retirement savings of America’s workers. 

I share your belief that it is essential to provide workers with the information 

they need to make nformed investment choices and to provide plan fiduciaries with 

critical information necessary for them to determine that the fees that are charged 

in connection with their 401(k) plans are reasonable. We want to work with you to 

provide practical solutions for workers and fiduciaries. 

While determining the optimal course will be difficult, our shared commitment to 

protecting the retirement security of all of America’s workers will guide us. Your 

hearing is an important first step in gathering the information we will need to accomplish our common goal. At the same time, as you know, we are currently reexamining the proposed regulations affecting 401(k) plans developed during the prior 

Administration to be sure they strike the appropriate balance between protecting 

workers and requiring greater transparency and accountability from the service providers to 401(k) plans. We look forward to becoming better educated about the 

issues as this process proceeds and working with you to create a more effective and 

useful structure for disclosure of 401(k) plan fees. 

Again, I appreciate your decision to hold this hearing, and look forward to working with you and the members of the Committee on Education and Labor on issues 

critical to America’s workers. 

The Office of Management and Budget has advised that there is no objection to 

the transmission of this letter from the standpoint of the Administration’s program. 

Sincerely, 

HILDA L. SOLIS, Secretary, 

U.S. Department of Labor. 

Chairman ANDREWS. We are equally honored to have with us the 

senior Republican member of the full committee, Mr. McKeon, who 

guided this committee with such grace and skill during his tenure. 

Welcome, Mr. McKeon. 

Mr. MCKEON. That long, long tenure. 

Chairman ANDREWS. All things must come to an end, huh? 

Mr. MCKEON. Thank you, Mr. Chairman. 

That is what we are hoping. 

I thank the gentleman for yielding. 

We are here this morning to discuss Chairman Miller’s legislation to change the way 401(k) retirement savings plans operate. 

Much of the focus has been on the bill’s requirements for increased 

reporting and disclosure. So let me start there. 

Let me be perfectly clear: Republicans support sensible disclosure 

to make 401(k) plans more transparent and understandable to 

workers. We are approaching this issue—with a spirit of openness, 

and a hope that we can work with the majority to craft a proposal, 

or with their proposal, as crafted. 

Unfortunately, it seems that the drafting process ended before it 

even began. Instead, we are starting the process with a bill that 

largely mirrors the proposal that stalled last year, because of legitimate concerns from both sides of the aisle. 
9 

I, for one, was not able to support last year’s proposal because 

I saw the potential for harmful, unintended consequences that 

would limit options for workers. I hope, at the end of the day, with 

this process, to fix a 0.5 percent, or a 1 percent, or a 1.5 percent 

fee—we don’t end up costing the workers a lot more. 

For instance, the bill’s requirement that all plans offer an index 

fund is tantamount to a government seal of approval on a particular investment option. This could inadvertently steer savers in 

a direction that isn’t best for them. The bill also requires the 

unbundling of services for the purposes of voluminous new reporting; this, despite the fact that experts have told us that unbundling 

could actually drive up costs for workers—the exact opposite outcome that we are trying to receive. 

I hope we can address these issues as the process moves forward. 

But I think a more open process would have allowed this debate 

before the legislation was introduced. 

I would also like to take a minute to clarify two separate and 

very serious issues facing America’s workers. The fees the workers 

pay on their 401(k) accounts can significantly impact their longterm savings. Transparency in these fees is a real concern, and one 

that Republicans share. 

But to blame 401(k) fees for the substantial losses workers are 

seeing in their retirement accounts is to ignore the real culprit, a 

stock market that has plummeted in the face of a continuing recession. 

Again, this is a serious issue, and one that is deeply impacting 

Americans from all walks of life, whether they are new parents establishing a college fund, or workers preparing for retirement. 

Let me say it plainly: The downturn in the stock market should 

not—it must not—be used as an excuse to enact controversial policies on 401(k) reporting and disclosure. To do so would not only be 

disingenuous, but it threatens to do a disservice to the very people 

that we are seeking to help. 

401(k) transparency is an important topic in its own right, and 

one that deserves an honest and realistic debate. 

When it comes to the market downturn, unfortunately, solutions 

will be much harder to come by. But that isn’t going to stop us 

from trying. That is why I am joining other Republicans today to 

introduce the Savings Recovery Act, a bill that takes important 

first steps to help Americans begin to rebuild the savings that they 

have lost. 

Our bill gives Americans flexibility and freedom to save, while 

eliminating penalties that would make it harder to rebuild what 

has been lost. We will raise the contribution limits on retirement 

accounts, and we will stabilize pensions with a glide path for recognizing losses, and additional time to boost funding. 

We will make it easier for families to save for college, and we 

will get capital flowing again by temporarily suspending the capital-gains tax on newly acquired assets. And we will allow more 

Americans to increase their income by doubling the Social Security 

earnings limit. 

The Savings Recovery Act is the product of a Republican solutions group that came together to address the very real concerns 

of Americans, who have seen their nest eggs evaporate. 
10 

We know that savings can’t be rebuilt overnight. But that is no 

excuse to ignore the challenges that families are facing. 

As for the bill before us today, the focus is much narrower. Rather than responding to the broader losses in American savings 

plans, this bill offers a specific prescription for 401(k) reporting requirements and investment options. And, so, recognizing the parameters of the bill, I look forward to a thorough examination of 

these issues. 

Members on both sides of the aisle recognize that Americans 

need to be able to save for retirement. I hope we can find similar 

agreement on what steps should be considered to enhance current 

savings opportunities, rather than stifling them. 

Again, thank you for the opportunity to provide a statement. And 

I yield back. 

[The statement of Mr. McKeon follows:] 

Prepared Statement of Hon. Howard P. ‘‘Buck’’ McKeon, Senior Republican 

Member, Committee on Education and Labor 

We’re here this morning to discuss Chairman Miller’s legislation to change the 

way 401(k) retirement savings plans operate. 

Much of the focus has been on the bill’s requirements for increased reporting and 

disclosure, so let me start there, and let me be perfectly clear: Republicans support 

sensible disclosure to make 401(k)s more transparent and understandable to workers. 

We’re approaching this issue with a spirit of openness and a hope that we can 

work with the majority as a proposal is crafted. 

Unfortunately, it seems the drafting process has ended before it ever began. Instead, we’re starting the process with a bill that largely mirrors the proposal that 

stalled last year because of legitimate concerns from Members on both sides of the 

aisle. 

I, for one, was not able to support last year’s proposal because I saw the potential 

for harmful unintended consequences that would limit options for workers. 

For instance, the bill’s requirement that all plans offer an index fund is tantamount to a government seal of approval on a particular investment option. This 

could inadvertently steer savers in a direction that isn’t best for them. 

The bill also requires the ‘‘unbundling’’ of services for the purposes of voluminous 

new reporting. This, despite the fact that experts have told us ‘‘unbundling’’ could 

actually drive up costs for workers—the exact opposite outcome we’re trying to 

achieve. 

I hope we can address these issues as the process moves forward. But I think a 

more open process would have allowed this debate before the legislation was introduced. 

I’d also like to take a minute to clarify two separate and very serious issues facing 

American workers. 

The fees that workers pay on their 401(k) accounts can significantly impact their 

long-term savings. Transparency in these fees is a real concern, and one that Republicans share. 

But to blame 401(k) fees for the substantial losses workers are seeing in their retirement accounts is to ignore the real culprit—a stock market that has plummeted 

in the face of a continuing recession. 

Again, this is a serious issue, and one that is deeply impacting Americans from 

all walks of life, whether they are new parents establishing a college fund or workers preparing for retirement. 

Let me say it plainly: The downturn in the stock market should not—it must 

not—be used as an excuse to enact controversial policies on 401(k) reporting and 

disclosure. To do so would not only be disingenuous, but it threatens to do a disservice to the very people we are seeking to help. 

401(k) transparency is an important topic in its own right, and one that deserves 

an honest and realistic debate. 

When it comes to the market downturn, unfortunately, solutions will be much 

harder to come by. But that isn’t going to stop us from trying. 
11 

That’s why I’m joining other Republicans today to introduce the Savings Recovery 

Act, a bill that takes important first steps to help Americans begin to rebuild the 

savings they have lost. 

Our bill gives Americans flexibility and freedom to save, while eliminating penalties that would make it harder to rebuild what has been lost. 

We’ll raise contribution limits on retirement accounts, and we’ll stabilize pensions 

with a glide path for recognizing losses and additional time to boost funding. 

We’ll make it easier for families to save for college, and we’ll get capital flowing 

again by temporarily suspending the capital gains tax on newly acquired assets. 

And we’ll allow more Americans to increase their income by doubling the Social Security earnings limit. 

The Savings Recovery Act is the product of a Republican Solutions Group that 

came together to address the very real concerns of Americans who have seen their 

nest eggs evaporate. We know that savings can’t be rebuilt overnight, but that’s no 

excuse to ignore the challenges that families are facing. 

As for the bill before us today, the focus is much narrower. Rather than responding to the broader losses in Americans’ savings plans, this bill offers a specific prescription for 401(k) reporting requirements and investment options. And so, recognizing the parameters of the bill, I look forward to a thorough examination of these 

issues. 

Members on both sides of the aisle recognize that Americans need to be able to 

save for retirement. I hope we can find similar agreement on what steps should be 

considered to enhance current savings opportunities, rather than stifling them. 

Again, thank you for the opportunity to provide a statement. I yield back. 

Chairman ANDREWS. Thank you, Mr. McKeon. And we want to 

proceed with that open-and-honest debate on the 401(k) Fair Disclosure for Retirement Security Act of 2009. 

And we have assembled, I think, an excellent group of ladies and 

gentlemen, to help us do that. 

I am going to read the biographies of the witnesses. And then the 

written testimony of each of you will be accepted, without objection, 

into the record. And we would ask if each of you would, then, give 

us a 5-minute oral synopsis of your testimony. 

At that time, we will turn to questions from the members of the 

committee, and try to learn more about what you think. 

Mercer Bullard is an associate professor of law at the University 

of Mississippi School of Law, and founder and president of Fund 

Democracy, and non-profit advocacy group for mutual-fund shareholders, including 401(k) participants. 

Mr. Bullard is returning to the committee. He has a J.D. from 

the University of Virginia Law School, an M.A. from Georgetown 

University, and a B.A. from Yale College. 

Welcome back, Professor Bullard. 

Kristi Mitchem is a managing director, and head of U.S. Defined 

Contribution Plans for Barclays Global Investors, BGI. Prior to 

joining BGI, Ms. Mitchem ran the West Coast Derivatives Group, 

and U.S. transition services for Goldman Sachs. 

Ms. Mitchem received her MBA from the Stanford Graduate 

School of Business, and her B.A. in political science from Davidson 

College. 

Ms. Mitchem, welcome to the committee. 

Alison Borland is the strategy leader for Hewitt Consultants Retirement Consulting Business, which administers retirement benefits for more than 11 million participants. She is responsible for 

studying and developing solutions that improve retirement security 

for plan participants. 
12 

Ms. Borland graduated summa cum laude from Vanderbilt University, with a bachelor’s degree in mathematics, and a minor in 

French. Good combination. 

And welcome to the committee. 

Julian Onorato is the chairman, CEO and president of 

ExpertPlan, Inc., which provides retirement-plan solutions and 

services to employers. Mr. Onorato has 25 years of experience within the financial-services industry, including more than 20 years in 

retirement-plan services. 

Mr. Onorato earned a B.S. in electrical engineering from Drexel 

University, and has completed an executive program at the Wharton School of the University of Pennsylvania, focused on reengineering the client-service process. 

Mr. Onorato, welcome. And you are one of my constituents, and 

my employer, so it is great to have you with us here today. 

Robert Chambers, welcome back. 

Mr. Chambers is the former chairman of the Board of the American Benefits Council, an employee-benefits lobbying firm, whose 

members either employ or administer employee plans. Mr. Chambers also serves as a partner in the McGuire Woods law firm, 

where he counsels employers in connection with tax-qualified retirement plans. 

Mr. Chambers received his B.A. from Princeton University, and 

his J.D. from the Villanova University School of Law. 

Welcome back, Mr. Chambers—good to have you with us. 

And, finally, Larry Goldbrum—did I pronounce your name correctly? 

Okay. Well, what would it be correctly? 

Goldbrum, excuse me—is the executive vice president and general counsel of the Spark Institute, a trade association that represents retirement-plan service providers, including mutual-fund 

companies, banks, insurance companies, third-party administrators, and benefits consultants. 

He received his law degree from the Vanderbilt University School 

of Law, and a bachelor of business administration degree from the 

George Washington University. 

I know Mr. Kline will be pleased that we have a majority of lawyers on the panel this morning, so we are ready to go. 

Mr. Bullard, we would ask you to go first. You have been here 

before, but I will reiterate for our newcomers, when the yellow 

light appears, you have a minute or so to wrap up. And when the 

red light appears, we would ask you to summarize and stop, so we 

can get on to the questions. Welcome back. 

STATEMENT OF MERCER E. BULLARD, FOUNDER, FUND DEMOCRACY AND ASSISTANT PROFESSOR OF LAW, UNIVERSITY OF MISSISSIPPI 

Mr. BULLARD. Thank you very much. Thank you Chairman Andrews, Ranking Member Kline, Chairman Miller, and members of 

the subcommittee, for the opportunity to appear before you today 

to discuss the 401(k) Fair Disclosure for Retirement Security Act 

of 2009. 

It is an honor and a privilege to appear before you today. 
13 

I am testifying, today, on behalf of Fund Democracy, an advocacy 

group for mutual-fund shareholders that I formed about 9 years 

ago. But I would be remiss not to mention Barbara Roper, the director of investor protection at the Consumer Federation of America, with whom I have developed the positions that you see in my 

written testimony, over past testimony and comment letters. 

The 401(k) Fee Disclosure Act is—reforms are long overdue. 

Under current law, figuring out your 401(k) fees is like trying to 

find a needle in a haystack, except the needle has been broken into 

three parts, and they have been put into three different haystacks. 

The investment-management fees appear in prospectuses. The 

plan fees appear in something called a Form 5500. And any other 

account fees that specific to the participant appear in yet another 

document, their quarterly statement. 

The prospectus fees are provided as a percentage of assets. The 

Form 5500 fees, if any participant could actually find those, are 

provided as a dollar amount, and not even on a per-account basis. 

So even if you were able to find all of these fees, you would still 

have to convert either the prospectus fees, of which there may be 

15 or so different options, into dollars, or the 5500 fees, into a percentage based on the entire size of the plan, and then figure out 

what it would be on a per-participant basis. And then you would 

have to figure out what appears on your quarterly statement, and 

figure out that as a percentage of fees. 

And then, finally, you would have, for at least one period of time, 

some idea of what you are paying in 401(k) fees. 

If you have any doubt about the absurd patchwork of disclosure 

requirements under current law, I suggest you visit the Department of Labor’s Web site, and review their own brochure, ‘‘A Look 

at 401(k) Fees.’’ 

The section that explains how to find out what you are paying 

in fees would bring tears to the eyes of anyone who has any kind 

of commitment to fee transparency. 

The 401(k) Fee Disclosure Act solves this problem by requiring 

that all fees be disclosed in one place, in one format. The act is a 

breath of fresh air in a regulatory environment that continues to 

be unfriendly to investors. 

The SEC recently announced the suspension of reform of 12b-1 

fees, and appears to be preparing to lower fiduciary standards for 

investment advisors. The Department of Labor has proposed rules 

that effectively protect conflicted investment advice provided to 

plan participants. 

The act’s requirement that fee disclosure also appear in participants’ statement, which they are actually likely to review, is also 

a major step forward. It also requires that fees be provided in dollars, in the same place that they will see the value of their accounts in dollars. 

For the first time in retail financial-services history, the act will 

require that fees are provided in a comparative format so that investors can place their fees in context. 

Standing alone, fees mean nothing to the fee-insensitive investor. 

Also, for the first time, the act recognizes the importance of giving 

participants freedom of choice in deciding whether to invest in a 
14 

passively managed fund, or an actively managed fund, that also 

will, inevitably, impose higher fees. 

Actively managed options, as a group, will, by definition, necessarily under-perform the market by the amount of their fees. 

This means that in the aggregate, active-management fees are a 

dead weight dragging down overall investment returns for 401(k) 

plans. 

Participants who are required to invest in actively managed 

funds may significantly outperform the market, but they may also 

significantly under-perform the market, as many have. 

It is unclear how employers can, consistent with their fiduciary 

duty, force their employees to pay higher fees and assume activemanagement risk. 

The answer may be that financial-services industry has every incentive to steer participants into actively managed funds, which 

are more profitable than passively managed funds. This is the only 

way to explain the industry’s Orwellian position that offering a 

passively managed investment option somehow limits choice. 

The industry argues that we should be focused on the employer’s 

freedom of choice, not the employees’. But it is the employees’ 

choice and financial security that should be our focus. 

The financial-services industry would leave the decision to the 

employer, and have us ignore the warning issued by the intellectual father of capitalism, Adam Smith, that ‘‘Managers of other 

people’s money rarely watch over it with the same anxious vigilance with which they watch over their own. They very easily give 

themselves a dispensation.’’ 

Jack Bogle reminded me of that piece of wisdom, in the ‘‘Opinion’’ section of yesterday’s Wall Street Journal. 

The employer stock option in 401(k) plans is another example of 

the incentives of managers of other people’s money. Employers 

have every incentive to create and encourage a captive class of 

shareholders, as illustrated by the image of Enron executives exhorting their employees to buy more Enron stock. 

We offer tax deferral to workers in order to help them pay for 

retirement. Yet, we then permit the workers to use that tax benefit 

to gamble 100 percent of their retirement security, not just on the 

stock of a single company, but on the stock of the company on 

which they also depend for their income. 

I strongly encourage Congress to consider limiting employee’s investment in employers’ stock to 20 percent of their account balances. 

But even without such a provision, the 401(k) Fee Disclosure Act 

promises to enhance transparency, and promote competition in a 

way that I am confident will lead to lower fees for America’s tens 

of millions of 401(k) participants. 

I am pleased to express my support for the act, and would be 

happy to answer questions that you might have. 

Thank you. 

[The statement of Mr. Bullard may be accessed at the following 

Internet address:] 
15 

http://edlabor.house.gov/documents/111/pdf/testimony/20090422MercerBullardTestimony.pdf 

Chairman ANDREWS. Mr. Bullard, thank you very much for your 

testimony. 

Ms. Mitchem, welcome to the committee. 

You need to turn your—there you go. 

STATEMENT OF KRISTI MITCHEM, MANAGING DIRECTOR, U.S. 

DEFINED CONTRIBUTION PLANS, BARCLAYS GLOBAL INVESTORS 

Ms. MITCHEM. On behalf of Barclays Global Investors, I appreciate the opportunity to testify today, regarding the 401(k) Fair 

Disclosure for Retirement Security Act of 2009. 

Headquartered in San Francisco, BGI is one of the world’s largest asset managers. We have approximately $1.5 trillion in assets 

under management, including hundreds of billions of ERISA plan 

assets. 

BGI services to its clients are focused on investment management. We do not provide other services, such as record-keeping. 

Clearly, the events of 2008 were painful for all those investing 

in retirements. These events have some questioning whether defined-contribution plans can achieve their objective of providing security in retirement for the workers who contribute to them. 

Yet, for all the talk of the failures of the system, a closer look 

at the evolution of 401(k) plans over the past several years revealed significant progress. First, the Pension Protection Act of 

2006 included a number of provisions to increase employee participation. And we have seen an increasing number of plan sponsors 

using these tools. 

Second, recent surveys show that despite the equity and market 

events of the past year, the vast majority of defined-contribution 

plan participants are sticking with their plans, leaving their money 

in, and continuing to contribute—evidence that participants understand and value the benefit provided by their defined-contribution 

plans. 

However, the impact of the market turmoil on participant balances has added urgency to the debate on, ‘‘What is the optimal design for defined-contribution plans, and how should they be structured to allow these vehicles to achieve their long-term objectives: 

Retirement Security for millions of Americans.’’ 

Providing plan fiduciaries and plan participants with additional, 

targeted information about fees and expenses will promote better 

investment decisions, and help 401(k) plans to better deliver retirement security to the American workforce. 

The legislation under discussion today addresses two of the largest issues for D.C. plans: First, for plan sponsors to have sufficient 

information about the fees and expenses to appropriately discharge 

their fiduciary responsibility in the selection of providers; and, second, the need for plan participants to have ready access to appropriate, easily understood information about the critical decisions 

that they need to make regarding investments. 

We believe that the appropriate elements of a disclosure regime 

for plan sponsors must rest on the unique fiduciary considerations 
16 

that a plan sponsor encounters in choosing investment funds for 

the platform. 

Through the important and significant costs of providing planparticipant level administration and record-keeping, a plan sponsor 

must determine how to best provide and pay for these services. In 

addition, it is most often the case that the workers pay for all of 

the major costs of the plan: Administration, record-keeping and investment management. 

Plan sponsors are, thus, in the position of agreeing to the fees 

and expenses that workers will fund through deductions from their 

investment balances in the plan. As such, we believe it is important that plan sponsors receive sufficient information, in sufficient 

detail, to appropriately discharge their responsibility. 

Today, the information that a plan sponsor needs is sometimes 

difficult to obtain or difficult to compare. There are two reasons for 

this. First, the myriad of investment alternatives utilized on 401(k) 

plans, mutual funds, insurance products, bank collective trusts, 

separately managed accounts—all of these structures have differing 

compensation mechanisms and differing terminology for what may 

be the same service. 

Second, it can be very difficult to evaluate fees and expenses, 

when fees for investment management are bundled with fees for 

administration, record-keeping and related services. 

I think we all agree that a worthwhile disclosure regime permits 

a comparison of like with like. BGI supports legislative efforts to 

require service providers to provide specific disclosures by fee category, so as to make plan sponsors’ decision-making less burdensome. 

As to plan participants, the most fundamental decisions that 

they need to make are whether, and at what level, to participate 

in the plan; which of the plan investment options to choose; and 

whether and when to change their investment allocations. These 

decisions are critical to the future value of their account. 

BGI believes that plan participants need information communicated in a way that is easy to understand, and that facilitates a 

comparison across the full range of designated investment alternatives. 

While transparency as to fees and expenses is important for plan 

participants, any disclosure document needs to present this information in context, as too much focus on fees and expenses could 

promote a tendency among participants to opt for the lowest-cost 

option, or to opt out of the plan, to the detriment of their retirement income. 

It is worth noting, in conclusion, that in our experience, in the 

defined-benefit market, asset-management services and administrative services, such as trustee services, are generally disclosed 

separately. This transparency has contributed to the salutary effect 

of bringing both investment-management fees and administrative 

costs down over the last decade. 

Increased transparency can, therefore, be an important catalyst 

for reducing the cost in D.C. plans, and improving the future income of all retirees. Thank you. 

[The statement of Ms. Mitchem follows:] 
17 

1 BGI includes Barclays Global Investors, N.A. and its worldwide asset management affiliates. 

Prepared Statement of Kristi Mitchem, Managing Director, Head of U.S. 

Defined Contribution, Barclays Global Investors, N.A. 

On behalf of Barclays Global Investors (BGI), I appreciate the opportunity to testify today regarding the ‘‘401(k) Fair Disclosure for Retirement Security Act of 

2009’’. 

Clearly the events of 2008 were painful for all those investing for retirement: global equities fell over 40 percent, and the average 401(k) investor lost approximately 

28% of their accumulated balances. These events have some questioning whether 

defined contribution (DC) plans can achieve their objective of providing security in 

retirement for the workers who contribute to them. Yet, for all the talk of the failures of the system, a closer look at the evolution of 401(k) and similar plans reveals 

significant progress over the last several years. First, the Pension Protection Act of 

2006 included a number of provisions to increase employee participation, and we 

have seen an increasing number of employers.using these tools. Second, recent surveys show that despite the equity market events of the past year, the vast majority 

of DC plan participants are sticking with their plans, leaving their money in and 

continuing to contribute-evidence that participants understand and value the benefit 

provided by their DC plan. 

However, the impact of the market turmoil on participant balances has added urgency to the debate on what is the optimal design for defined contribution plans, 

and how should they be structured to allow these vehicles to achieve their long-term 

objective of retirement security for millions of Americans. Providing plan fiduciaries 

and individual plan participants with additional targeted information about fees and 

expenses, which the bill under discussion today will do, will promote better investment decisions and help 401(k) plans to better deliver retirement security for American workers. 

Background on BGI 

BGI 1 was founded in 1971 as part of Wells Fargo Bank in San Francisco, California. Today, we are owned by Barclays PLC, one of the world’s leading diversified 

financial services companies. We are headquartered in San Francisco with approximately 1600 employees in California and elsewhere in the U.S. and another 1400 

worldwide serving the needs of our global clients. BGI is one of the world’s largest 

institutional asset managers, and is the largest provider of structured investment 

strategies, such as index, tactical asset allocation and quantitative active strategies. 

BGI pioneered the first institutional index fund strategy in 1971, and has continued 

a tradition of financial innovation ever since-including the development of target 

date retirement (lifecycle) funds in the early 1990’s. 

Overview 

BGI is pleased to see the focus of this Committee, the Department of Labor and 

others on the ways in which services are provided to employee benefit plans and 

in the way service providers are compensated. Increased complexity has made it 

more difficult for plan sponsors and other plan fiduciaries to understand what the 

plan actually pays for specific services and where the potential exists for conflicts. 

This is particularly so for DC plans, where over the last decade the costs associated 

with managing and maintaining the plan have increasingly been shifted to plan participants—often through bundled fee arrangements where administration and investment management are offered by the same provider. 

Managers of defined benefit (DB) pension plans have well-established tools that 

allow for savings and investment today in order to deliver retirement benefits for 

workers far in the future. Using a fully funded DB plan for comparison, we identify 

four dimensions of comparability for DC plans-contributions, investment quality, 

portability and lifetime income. Most of our testimony will focus on the second of 

these-investment quality—which necessarily includes the one of the largest determinating factor in long-term performance—which is fees and expenses. 

First, let me briefly address the other dimensions. In a DB plan, contributions are 

mandated as function of funded status. In a DC plan, it is the participant who must 

decide if they want to participate, and how much they want to contribute. The Pension Protection Act of 2006-part of the progress in DC plans referenced above-provided plan sponsors with fiduciary protections in establishing auto-enrollment and 

auto-default savings rates. Data shows plans are adopting auto-enrollment, with the 
18 

2 Hewitt Associates ‘‘Trends and Experience in 401(k) Plans 2007’’. 

3The Importance of Default Options for Retirement Saving Outcomes: Evidence from the 

United States. Beshears, Choi, Laibson, Madrian (2007). 4 Cerruli, Retirement Markets 2007; Hewitt Associates ‘‘Trends and Experience in 401(k) 

Plans 2007. 

number almost doubling from 2005. And, of the top 1000 plans in the United States, 

over 53 percent now offer auto-enrollment for new employees.2

Studies have also shown that people tend to accept the terms of auto-enrollment 

as given. They are unlikely to opt out, and they are also likely to stay with the default savings rates-now generally set at 3 percent.3 So inertia is working but it could 

work even better. Early results from researchers in the behavioral finance field indicate that even if you take the default savings rate up to 6, 7, 8 or 9 percent, you 

won’t see a meaningful number of participants opting out. So, although we don’t 

have the level of funding that’s required to support retirement adequacy today, we 

can get there by encouraging more and more plan sponsors to automatically enroll 

participants and by creating further incentives for employers to increase the default 

saving rate to 6 percent and higher. Another dimension of pension investing is portability, arguably the one area where DC plans outpace DB plans. Unlike the traditional DB plan where unvested balances are typically lost when an employee leaves, 

the DC plan system explicitedly recognizes the more transient nature of today’s 

worker, where contributions actually follow an employee. The DC portability feature 

is not without its flaws. Moving balances from one employer to the next is difficult 

and requires a participant to take action. And we know that if exiting employees 

take a cash distribution, a significant amount of those funds leak out of the retirement system. 

Another comparable to DB plans is lifetime income. Every DB plan offers the opportunity for participants to choose income for life. But this critical component has 

yet to have been addressed in a meaningful way in the 401(k) system today. Important as it is to accumulate sufficient assets during a participants working years, it 

is also as important to have a strategy to fund consumption in retirement. Many 

financial services providers, including BGI, are engaged in designing products for 

the DC market to manage the twin risks of inflation and longevity. These products 

take two principal forms: guaranteed minimum payments for set periods and annuities. The market turmoil in 2008 has increased the interest of both plan sponsors 

and plan participants in these products. 

Now, moving closer to the subject of today’s hearing, is the dimension of investment quality. DB plans tend to be well diversified, use institutional-quality managers and rebalance on a regular basis back to a strategic asset allocation. To mimic 

this in a 401(k) world, ideally the majority of plan participants would be invested 

in autorebalancing strategies that are constructed with institutional quality funds. 

Clearly these allocations would need to be age appropriate, provide acceptable outcomes across a range of different market environments, and be priced at levels that 

reflect the bulk buying power of 401(k) plan sponsors. 

More DC plans today offer pre-mixed portfolios that are well diversified and autorebalancing than ever before.4 And again, the PPA has moved things in the right 

direction, by providing a level of fiduciary relief for plan sponsors to default participants into just these types of investments. Congress should also consider changes 

that would allow employers to diversify participants out of heavy concentrations of 

company stock as they near retirement. The legislation under discussion today addresses two of the largest issues for DC plans: first, for plan sponsors to have sufficient information about fees and expenses to discharge their fiduciary responsibilities in the selection of service providers. And second, the need for plan participants 

to have ready access to appropriate, easily understood information about critical 

issues that affect their investment decisions. 

Elements of a Disclosure Regime for Plan Sponsors 

We believe the appropriate elements of a disclosure regime for plan sponsors must 

rest on the unique fiduciary considerations that a plan sponsor encounters in establishing designated investment alternatives under a DC plan and in choosing investment funds for the plans. Due to the importance and significant cost of providing 

plan participant level administration and recordkeeping, a plan sponsor must determine how best to provide and pay for these services. Recordkeeping expense is 

often-but need not be-funded on a ‘‘bundled’’ basis through the expenses charged 

against assets held by the investment funds in which the plan invests and/or 

through fees received by the investment manager. In addition, it is more often the 

case that plan participants fund all the major costs of the plan (administration, recordkeeping and investment management). Plan sponsors are thus often in the posi-
19 

5The Department of Labor proposed service provider exemption under Section 408(b) (2) [citation] also seeks to provide plan sponsors with information necessary for the sponsor to determine that a contract or arrangement is reasonable. (See, Reasonable Contract or Arrangement 

Under Section 408 (b)(2)-Fee Disclosure 72 FR 70988). However, as proposed, service providers 

offering a bundle of services generally are not required to break down the aggregate compensation or fees among the individual services comprising the bundle, with two exceptions—if separate fees are charged against a plan’s investment and reflected in the net asset value, and if 

compensation or fees are set on a transaction basis (even if paid from mutual fund management 

or similar fees). Further, we note that the mutual fund industry has questioned whether the 

Department’s proposed regulation can require investment advisors to mutual funds to make disclosures to plan fiduciaries as contemplated under the proposal-even though these investment 

managers receive the major portion of plan fees if the plan sponsor chooses mutual funds as 

the designated investment alternative. See, Testimony of Paul Schott Stevens, President and 

CEO, Investment Company Institute, Department of Labor Hearing on 408 (b)(2) Proposal (April 

1, 2008). The legislation under discussion today addresses these deficiencies. 6 Bundled services may provide the lowest cost alternative for small plans. It is not the bundling of services together that is of concern, but rather the plan fiduciary’s need to be able to 

compare the costs of certain services as between potential service providers and in myriad configurations. 

tion of agreeing to the fees and expenses that participants will fund through direct 

or indirect deductions from their investment balances in the plan. As such, we believe it is important that plan sponsors receive sufficient information, in sufficient 

detail, to appropriately discharge this responsibility. Today, the information the 

plan sponsor needs is sometimes difficult to obtain or difficult to compare. There are 

two reasons for this. First, the myriad investment alternatives (mutual funds, insurance products, bank collective trusts, separately managed accounts) have differing 

compensation mechanisms and differing terminology for what may be the same 

service. Second, it can be more difficult to evaluate fees and expenses when fees for 

investment management are bundled with fees for administrative, recordkeeping 

and related services. 

It is not enough for plan sponsors and other plan fiduciaries to understand what 

fees and expenses are explicitly deducted from a participant’s account or paid directly from plan assets or by the plan sponsor from its own funds. To fully evaluate 

potential investment options and service providers, and their appropriateness for its 

plan, plan sponsors must understand fully how each service provider is compensated, both directly and indirectly.5 BGI supports legislative efforts to require 

service providers to provide specific disclosures, by fee category, so as to make plan 

sponsors’ decision-making less burdensome. 

A worthwhile disclosure regime permits a comparison of ‘‘like with like’’. The challenges faced by plan fiduciaries in making decisions among service providers for the 

same services is compounded by the inability to make comparisons. For example, 

a plan sponsor who is evaluating a proposal from (a) a bundled provider who offers 

a full range of affiliated investment options, (b) a proposal from an independent recordkeeper whose platform can accommodate most any investment option available 

in the DC market, and (c) a proposal from a bundled provider who permits the plan 

fiduciary to add unaffiliated investment options but is generally priced for a plan 

using affiliated investment options, will find it difficult to make effective comparison 

of relative costs. In the first proposal, the sponsor cannot determine the fee for plan 

level administration/recordkeeping, in the second the cost of administration and investment are separate and thus transparent, and in the third, the mix of investment 

options drives the overall cost to the plan and its participants but without knowledge of the underlying fees in administration/recordkeeping, the plan fiduciary may 

be unable to determine if any particular affiliated investment option is appropriately priced. 

Bundled service arrangements may be appropriate for some plans, particularly 

smaller ones.6 This is only appropriate if the fee components of both recordkeeping 

and asset management are separately and clearly disclosed. Clear, comparable and 

fully disclosed information about compensation will allow the plan sponsor to more 

easily and adequately meet its fiduciary responsibility under ERISA to determine 

that the fees and expenses are reasonable. 

It is worth noting that in our experience in the defined benefit market, asset management services and administrative services, such as trustee services, are generally 

disclosed separately. This transparency has contributed to the salutary effect of 

bringing both the investment management fees and administration costs down over 

the last decade. 

Elements of a Disclosure Regime for Plan Participants 

The appropriate elements for a disclosure regime for plan participants must be 

grounded in an understanding of the two levels of investment decision being made 
20 

7 Company stock, an investment option in a number of DC plans, will need to be addressed 

separately due to the particular nature of this investment option as compared to other investment strategies. 

in DC plans. The first, made by plan fiduciaries, is to decide what investment 

choices to make available to plan participants from the enormous array of potential 

investments and the second, the decision by plan participants regarding how to direct their funds among the options selected by the plan sponsor. The information 

necessary for a plan fiduciary to determine what investment options to offer (and 

which service providers to retain) differs from the information which plan participants need when choosing an appropriate investment from amongst those investment options. 

The most fundamental decisions that plan participants need to make are whether, 

and at what level, to participate in the plan; which investment options to choose; 

and whether and when to change their investment allocations. These decisions are 

critical to the future value of the account. Participants’ decision making is influenced by many considerations including basic behavioral finance factors. 

BGI believes that participants need information communicated in a way that is 

easy to understand and facilitates comparison across the full range of designated 

investment alternatives, including automated asset allocation funds (i.e., target date 

funds and managed accounts). Funds should be organized around risk level, rather 

than by asset class, as participants do not necessarily understand asset class designations, but do understand risk levels such as ‘‘conservative’’, ‘‘moderate’’, ‘‘moderate aggressive’’ and ‘‘aggressive’’. There should be a separate section called 

‘‘premixed asset allocation products’’ for multi-asset class investments and indicate 

the the risk level is either static or a function of the investment horizon. This approach provides two benefits: it provides basic risk information without the necessity for a plan participant to review another document and eliminates the category 

of ‘‘other’’ which otherwise would include all designated investment alternatives that 

are not stock or bond funds.7 A fund description should be provided that communicates the investment objective succinctly and in ‘plain English’. We don’t believe 

the mere identification of the management style of the fund as being ‘passive’ or 

‘active’ provides useful information to most participants, who would not be familiar 

with this terminology. We note that unless asset based fees for administration/recordkeeping are disaggregated from management fees, the distinction between passive and active is not very meaningful-participants need to understand how much 

excess return (‘alpha’) they should be expecting vis-a-vis the fee to be paid. If certain 

investment options carry more administrative/recordkeeping fees than others (which 

is not uncommon), plan participants need to understand that higher fees are not 

necessarily due to high excess return expectations. 

Behavioral finance research shows that when confronted with too much information, or information that is not organized to be customer friendly, participants fail 

to participate or engage in decisions about their investment allocation. While transparency as to fees and expenses is important for plan participants, any disclosure 

document also needs to present this information in context, as too much focus on 

fees and expenses could promote a tendency among participants to opt for the lowest 

cost option, (most likely to be a money market fund or company stock) to the detriment of their retirement income. Failure to adequately diversify investments is 

one of the more common errors made by plan participants. 

A number of plans provide multiple investment options within the same general 

strategy (for example, several large cap domestic equity funds). When a plan does 

so, behavioral finance research suggests that plan participants would also benefit 

if the alternatives within the same strategy were either ranked by cost or the least 

cost alternative were highlighted in someway. 

Other 

The bill also proposes that all DC plans provide an investment option that is an 

unmanaged or passively managed fund meeting certain criteria as to its securities 

portfolio and investment objectives (including the likelihood of meeting retirement 

income needs if funded at adequate levels. We believe one of the advantages of 

ERISA is that it permits plan sponsors and plan fiduciaries to make their own prudent decisions about what investments are appropriate for their plan participants 

and beneficiaries. However, the Committee may wish to consider the approach taken 

by the Federal Employee Retirement Security Act of 1986 (FERSA) which established the Federal Thrift Savings Plan. As amended, FERSA includes six categories 

of investment options, with a focus on index strategies across the investment spectrum (equity and fixed income) as well as lifecycle funds. While many plan sponsors 
21 

do provide passive investment options in their plans, this Committee should consider how to further encourage this trend. 

Conclusion 

Achieving financial security in retirement is a significant challenge for most 

Americans. Currently, many DC plans have challenges with three of the four major 

dimensions of retirement security: the contribution, or savings, component; the investment quality component; and the retirement distribution component. By promoting more effective disclosure of fees and expenses to plan sponsors and plan participants, the 401(k) Fair Disclosure for Retirement Security Act of 2009 would improve the second component. Increased transparency can be an important catalyst 

for making DC plans performs more like DB plans in the balance of costs and investment performance and thereby improving the future income of all retirees. 

Additional Background on BGI 

At December 31, 2008, BGI managed over $1.5 trillion, of which approximately 

$200 billion represents defined contribution plan assets. For both its defined contribution and defined benefit plan clients, BGI acts solely as an investment manager. Neither BGI nor any of its affiliates currently act as master trustee or provide 

recordkeeping services. It does act as a collective fund trustee and as a named custodian with custody operations, fund accounting and related services provided by third 

parties. Since its founding, BGI has remained true to a single global investment philosophy, which we call Total Performance Management. BGI manages performance 

through the core disciplines of risk, return, and cost management. The success of 

our indexing methodology results from our focus on delivering superior investment 

returns over time while minimizing trading and other implementation costs and rigorously controlling investment and operational risks. It has been the foundation for 

the way we’ve managed money for over 30 years and we believed it has served our 

clients very well. BGI’s clients are ‘‘institutional’’, by which we mean defined benefit 

and defined contribution pension plans sponsored by corporations or public agencies, 

and endowments, foundations and other similar pools of capital. BGI’s services to 

its clients are completely focused on investment management; we do not provide 

other services, such as recordkeeping. Among those institutions we have been honored to serve is the Federal Thrift Savings Plan (TSP). BGI was first appointed a 

manager for the TSP in 1988, and we have successfully retained and grown this relationship in regular, highly competitive bidding processes since that time. 

Chairman ANDREWS. Thank you very much, Ms. Mitchem. 

Ms. Borland, welcome. We look forward to your testimony. 

STATEMENT OF ALISON T. BORLAND, RETIREMENT STRATEGY 

LEADER, HEWITT ASSOCIATES, LLC 

Ms. BORLAND. Thank you. 

Chairman Andrews, Chairman Miller, Ranking Member Kline, 

and members of the subcommittee, I am honored to be here today, 

representing Hewitt Associates, to discus our support of the 401(k) 

Fair Disclosure for Retirement Security Act of 2009. 

We have a unique perspective, as the largest independent provider of retirement-plan administration services, serving more than 

11 million retirement-plan participants. We are not affiliated with 

any investment-management firm. 

Now, more than ever, employees need to accumulate the greatest 

retirement savings possible for every dollar saved. Our experience 

shows that increased fee transparency leads to lower fees. Because 

the vast majority of these fees are paid by participants, lower fees 

lead to higher retirement benefits for participants. 

Plan fiduciaries cannot fulfill their obligations without clear fee 

disclosures from service providers that break out fee details for various services—most importantly, investment-management and administration fees, which, together comprise more than 90 percent 

of total fees in 401(k) plans. 
22 

This breakout of these fees, for these services, on a consistent 

basis, enables ready comparisons of various service providers and 

their structures, so that fiduciaries can make the best decisions, 

based on complete information. 

In addition to evaluating the fees and their reasonableness, at 

the time of the initial contract, fiduciaries need to evaluate them 

on an ongoing basis. Only by understanding administrative fees 

separately from asset-based fees, do plan fiduciaries have the information needed to effectively understand how these fees could fluctuate over time, and deem those changes reasonable. 

The best way to illustrate the importance of transparency is 

through an example. Hewitt recently worked with a client that 

wanted to evaluate combining the services for two separate large 

401(k) plans. Administration fees had not been broken out for one 

of the plans in the past. The impact of this was clear: One plan was 

charged $50 per participant for administration, while the second 

plan was charged more than $100 for administration, even though 

the second plan was significantly larger. 

Unbundling the administrative fees from the investment-management fees provided the company with the ability to look closely 

at the investment choices offered in their plan, based on their own 

merit, and also evaluate the administration services in greater 

depth. This resulted in a selection of lower-priced, non-mutual-fund 

vehicles, as well as a significant reduction in the administrative 

fees. 

The combined fee structure across both plans decreased by nearly half. Administrative fees were reduced to just over $40 per participant. Total fees decreased by about $7 million, all of it directly 

accruing to plan-participant accounts. This is just one example of 

a scenario we see on a regular basis. 

The end result may or may not result in the actual unbundling 

of services. But the unbundled transparency almost always leads to 

lower prices and, therefore, increased benefits to plan participants. 

Second, I would like to say a few words about the need for disclosure of additional revenue sources and conflicts of interest. Service 

providers often generate revenue streams by providing services to 

401(k) plan participants that are unrelated to the 401(k) plan, like 

offering retail IRA rollovers, or other financial products. 

It is critical that all sources of revenue generated as a result of 

the 401(k) relationship are disclosed, so that the plan sponsor can 

identify and manage conflicts of interest that may affect plan participants. 

The third issue I would like to address is participant fee disclosure. We believe that comprehensive information should be readily 

and easily accessible to participants. Mandatory disclosures should 

help participants understand fees on their account balances, as 

well as provide other important information to facilitate investment 

decisions, such as risk level and the importance of diversification. 

We have to acknowledge that many participants lack the basic 

financial acumen to understand these issues. But unbiased investment advice, education and certain plan-design features can make 

a difference there. 

In summary, we support Chairman Miller’s bill because it is, 

quite simply—its provisions enhance the retirement security of 
23 

Americans through much-needed clarification on the level of disclosure required. The bill does not allow service-provider exemptions 

that get in the way of full transparency. 

Knowledge is power. And by arming plan sponsors with complete, consistent and comparable information, they will be better 

equipped to negotiate and provide high-quality plans for their participants at reasonable costs. Hewitt would be pleased to offer our 

data analysis, our experience, and our consulting and administration expertise to help the subcommittee complete its work on this 

issue. Thank you. 

[The statement of Ms. Borland follows:] 

Statement of Alison Borland, Retirement Strategy Leader, Hewitt 

Associates, LLC 

Mr. Chairman and Members of the Subcommittee: Thank you for the opportunity 

to testify at this important hearing on 401(k) Fair Disclosure for Retirement Security Act of 2009. My name is Alison Borland, and I am the Retirement Strategy 

Leader for Hewitt Associates. As requested, I will focus my remarks today on the 

experience of mid- to large-sized employers in their role as 401(k) plan fiduciaries. 

Hewitt Associates is a global human resources outsourcing and consulting company providing services to major employers in more than 30 countries. We employ 

23,000 associates worldwide. Headquartered in Lincolnshire, Illinois, we serve more 

than 2,000 U.S. employers from offices in 30 states, including many of the states 

represented by the members of this distinguished Subcommittee. 

As one of the world’s premier human resources services companies, Hewitt Associates has extensive experience in both designing and administering 401(k) plans for 

mid- to large-sized employers, including helping employers to communicate with 

their participants about this increasingly important benefit. We are the largest independent provider of administration services for retirement plans, serving more than 

11 million plan participants. We do not manage funds and have no affiliations with 

any investment management firms. 

The focus of our testimony today is to make a case for much greater transparency 

in the disclosure of fees by service providers to plan fiduciaries, a position that we 

believe Chairman Miller’s bill addresses well. Now more than ever, employees need 

to accumulate the greatest retirement savings possible for every dollar saved. Our 

experience shows that increased fee transparency increases fiduciaries’ understanding and their negotiating power, ultimately leading to lower fees and higher 

retirement benefits for participants. We will provide several real-world examples 

that illustrate how full transparency can benefit both fiduciaries and participants. 

We will also discuss the need for full disclosure of potential conflicts of interest by 

service providers, the advantages of providing mandatory fee disclosure to plan participants and the need for unbiased investment advice and financial education to 

help participants adequately prepare for retirement. 

Plan Fiduciaries Must Understand All Fees 

As the Subcommittee is well aware, 401(k) plans play a vital role in retirement 

income security for the majority of Americans. In a recent Hewitt survey, 65 percent 

of the 302 employers surveyed indicated that 401(k) plans were the primary retirement vehicle for their workforce.1 This dependence, coupled with the negative impact of the economic downturn on 401(k) account balances, gives even greater urgency to taking the necessary steps to prepare employees to be financially secure 

when it comes time to retire. 

Since most plan fees are paid by participants out of their accounts, these fees can 

significantly affect the overall income that plan participants earn and, consequently, 

affect their overall retirement security. To protect the interests of their participants 

and beneficiaries, plan fiduciaries must increasingly act as experts in plan fee arrangements. 

Plan fiduciaries need a complete understanding of all fees under a contract to ensure that the charges constitute reasonable compensation. This is necessary before 

any contract can be covered by the prohibited transaction exemption under section 

408(b)(2) of ERISA. Equally as important, understanding plan costs is necessary for 

fiduciaries to act prudently and solely in the interest of plan participants and beneficiaries when selecting a service provider, as required by section 404(a) of ERISA. 

Plan fiduciaries cannot fulfill their obligations without clear and concise fee disclosures from service providers. Further, these fees must be disclosed in a manner that 
24 

allows for ready and consistent comparisons. Without a uniform basis of disclosure, 

plan fiduciaries cannot make the best decisions. The disclosures required under current law are both unclear and insufficient, and the 2008 Department of Labor’s proposed regulations on 408(b)(2) also fall short. 

Service Providers Must Fully Disclose Fee Details 

To fully meet their obligations, fiduciaries must understand the most significant 

fee components of their plans and the services covered by these costs. A recent study 

highlighted that there is significant variation in how fees are charged for defined 

contribution plan services.2 Uniform disclosure rules that permit meaningful fee 

comparisons will help fiduciaries better evaluate the costs of services among competing service providers, even when different packaging and pricing methods are 

used. It is especially important that plan sponsors understand the embedded cost 

of services that a service provider may wrap into a single price and represent as 

‘‘free.’’ In addition to evaluating fees at the time of contract signing, fiduciaries need 

to consider the impact of fees on an ongoing basis to understand how they may 

change over time. Full disclosure by service providers is essential if plan fiduciaries 

are to act in the best interest of plan participants. 

Breaking Out Fees Increases Knowledge and Negotiating Power 

Typical plans have investment management, administrative, trustee, and other 

miscellaneous fees. 

Investment management and administrative fees generally account for more than 

90 percent of individual account plan costs. Investment management fees are based 

on the value of the assets. Administrative fees include costs for recordkeeping, communication, compliance, and education, which are generally based on the number 

of participants served by the plan. Rather than charge a separate fee based on the 

number of participants in the plan, many providers who manage funds in addition 

to providing administration services will embed the administrative fees within the 

asset based fees that also cover investment management. By obtaining a breakout 

of these administrative fees from the asset-based fees, fiduciaries gain improved negotiating power by having the information needed to more effectively model how 

these fees may fluctuate over time with changing asset values and participant size. 

More details about the two primary sources of fees in 401(k) plans and the importance of separating them are described below. 

Investment Management Costs 

Investment management expenses are the largest plan cost, making up approximately three-quarters of total plan fees. These fees are reflected in the expense ratios of the funds represented in the plan. 

Research has proven that fees are a critical—if not the most important—factor 

when selecting funds. In fact, studies have shown that lower-cost funds consistently 

and substantially outpace higher-cost funds over time.3 Understanding a fund’s investment costs helps plan fiduciaries select investment alternatives with strong relative historical returns and the lowest possible fees. For instance, 401(k) plans for 

mid- to large-sized employers with substantial assets might secure a tiered fee 

schedule that guarantees a decrease in expense ratios as the assets grow. This is 

accomplished by using fund vehicles available only to institutional investors, such 

as separate accounts and collective trusts. These fund vehicles have been common 

in defined benefit plans and are gaining popularity in 401(k) plans because of the 

clear cost advantages. 

Administrative Costs 

Administrative costs are the second largest source of fees in 401(k) plans. On average, administrative fees represent an additional 20 percent of total plan fees. 

These fees are often embedded within the expense ratio of the mutual funds within 

the plan. If a plan sponsor does not understand that it is paying administrative fees 

through the investment management fees, it may believe administration services 

are ‘‘free.’’ This might lead the plan sponsor to inadvertently choose investment options or administrative services that do not maximize participant savings. 

According to Hewitt survey data, 75 percent of plans require plan participants to 

pay some or all fees associated with administrative services.4 Unlike investment 

management costs, which logically vary based on the amount of assets in the plan, 

the actual cost of administrative services is more dependent on the number of participants served. Because many service providers charge administrative fees as a 

percentage of assets embedded within the investment management fee, administrative fees fluctuate as plan asset values change over time. Under normal market conditions, this means that the administrative fees will often increase over time, even 

if participant counts remain the same. This practice is most common with bundled 
25 

providers that combine investment management services and administrative services in one bundled price. 

There is no reasonable explanation why administrative costs should fluctuate 

based on asset size. If administrative fees are broken out separately from investment management fees and understood in dollars per participant (even if charged 

in basis points), responsible fiduciaries will have the ability to accurately compare 

all plan fees and make the optimal investment and administrative choices. Scrutiny 

of the initial contract is a necessity, but periodic review over the life of the contract 

is also very important to ensure fees remain reasonable. 

Real-World Examples of the Benefits of Uniform and Detailed Fee Comparisons 

In our work with large employers, Hewitt finds that detailed and uniform fee comparisons across different types of service providers often results in lower negotiated 

fees. Armed with disclosure of fee components, the plan fiduciary can consider alternate providers, evaluate lower-cost fund options, and/or negotiate lower fees with 

the current provider. Lower fees directly benefit plan participants by increasing 

their account balances and compounding this savings throughout their working 

years. Several real-life examples illustrate the point. 

Company X Company X wanted to evaluate the benefits of combining the two separate 401(k) plans it sponsored through two different service providers. The combined plans had nearly $5 billion in assets and served 45,000 participants. Total 

fees for the plans were 0.30 percent, with embedded administrative fees of just over 

$50 per participant for one plan to more than $100 per participant for the second 

plan, with an average of $85 per participant. Administrative fees had not been broken out for the more expensive plan in the past, explaining the wide differential in 

per participant fees. 

Consolidating the two plans, including investment options and administration 

services, created significant savings on investment management and administrative 

costs. Further, unbundling the administrative fees from the investment management fees provided the company with the ability to look more closely at the investment choices and evaluate the administration services in greater depth. This resulted in the selection of institutional funds (non-mutual fund vehicles) and a significant reduction in administrative costs through the negotiation of per participant 

fees. The combined fee structure across both plans dropped by nearly one-half to 

only 0.16 percent, including administrative fees of just over $40 per participant. 

The approximately $2 million of annual savings in administrative fees accrued directly and entirely to participants. Total fees decreased nearly $7 million per year. 

Company Y Company Y sponsored a plan using a bundled fee structure with total 

fees of 0.63 percent of plan assets, which included an estimated $242 per participant 

in embedded administrative charges. The firm had 3,000 participants and $250 million in assets. Although satisfied with the services, as a responsible fiduciary, Company Y hired a consultant to help them better understand their fees and fee structure. Following the analysis, Company Y was able to negotiate with their same service provider for a drop in total fees from 0.63 percent to 0.46 percent, with a reduction of administrative fees from $242 per participant to $155 per participant. Further, Company Y negotiated additional services for participants as part of the same 

administrative fee structure. All $290,000 of annual savings accrued entirely to participants. 

Company Z Company Z used a bundled provider for a plan that was predominantly invested in mutual funds. The firm had over 50,000 participants and in excess of $4 billion in assets. Total fees were just over 0.50 percent, with embedded 

administrative fees estimated at nearly $100 per participant. After disclosing and 

evaluating the fee structure, the current service provider offered to substantially reduce fees and offered alternative institutional (non-mutual fund) products. With this 

new opportunity, fees could decline to approximately 0.30 percent, with estimated 

administrative fees reduced to just under $50 per participant. Plan participants 

would realize the annual savings on administrative fees of nearly $4 million per 

year. In addition, under the new fee structure, as assets grow over time, participants’ savings will grow. 
26 

BEFORE AND AFTER PRICING SUMMARY FOR REAL–WORLD EXAMPLES 

Example Assets Participant 

count 

Total fees 

before 

Total fees 

after 

Admin/trustee 

fees before Admin/trustee fees after 

Company X $5B 45,000 0.30% 0.16% $85/ppt Just over $50 per participant 

15% to 60% reduction 

Over $2 million in annual savings 

Company Y $250M 3,000 0.63% 0.46% $242/ppt $155 per participant 

36% reduction 

$290,000 in annual savings 

Company Z >$4B >50,000 0.50% 0.30% $100/ppt Less than $50 per participant 

More than a 50% reduction 

Nearly $4 million in annual savings 

The resulting savings in these examples were possible once plan sponsors understood that a significant portion of plan costs was not dependent on asset size but 

rather on number of participants. This allowed them to quantify the fees on that 

basis. When all costs are bundled into an aggregate asset-based fee, fiduciaries must 

be able to model how fees will change over time and how reasonable they are when 

considering changes in asset size and participant counts. 

Plan Sponsors Need Unbiased Information About Revenue Sources 

Service providers often generate revenue streams by providing services to 401(k) 

plan participants that are unrelated to the 401(k) plan. It is critical that all potential sources of revenue generated from servicing the plan are disclosed so that the 

plan sponsor can identify and control conflicts of interest that may affect plan participants. 

A useful example is when a 401(k) service provider offers participants the ability 

to roll over their 401(k) account balances into the provider’s own retail individual 

retirement accounts (IRAs) upon termination of employment. Many administrative 

providers actively market their IRA solution, because encouraging these rollovers 

can lead to very lucrative add-on revenue. So in essence, some providers may do the 

administration work on a 401(k) plan with the ultimate goal of obtaining a high percentage of participant rollovers at termination or retirement, given that high dollar 

balances, along with the often higher investment fees in an IRA environment, are 

generally more profitable than providing the 401(k) services. 

These cross-selling practices may be detrimental to participant retirement security. Hewitt’s research shows that it is usually better from a cost perspective to either leave the accounts in the existing mid- to large-sized 401(k) plan, or to move 

those funds into another mid- to large-sized employer sponsored 401(k) plan if available through a new employer. The marketing of rollover products often does not adequately explain the trade-offs and potential benefits between alternatives. In addition, the provider servicing the 401(k) plan may not have the best IRA solution or 

pricing. Participants may be encouraged to use a sub-optimal product when it is promoted in conjunction with plan services, believing the employer has selected the 

provider through the fiduciary process. 

Consider an example of a participant with access to a 401(k) plan with institutionally priced investment options. Using conservative assumptions and typical account 

balances, our modeling shows that a 35-year-old who is an average saver and moves 

her $33,000 balance from her company plan to a retail IRA could lose $37,681, or 

9 percent (or more), compared to what she would have if she remains invested in 

the 401(k) plan until she receives required distributions at age 701⁄2. If she is an 

active saver who contributes 8 percent per year over the course of her career and 

then moves her $101,808 balance to an IRA at age 35, she could lose $116,250 or 

more. If we consider the greater fee savings she typically would experience in a 

large 401(k) plan, the IRA loss increases to $244,078, representing a loss of 18 percent of the total accumulated balance.5 Plan sponsors must understand the incentives that may exist for service providers to encourage participant behaviors that 

may not be in their best interest because they do not contribute to greater retirement security. Service providers may directly market products like retail IRAs, 

other retail investment products, or life insurance products to this captive audience. 

Plan fiduciaries need to understand how these potential revenue streams may affect 

services received and administrative fees paid. They also need to carefully consider 

the potential consequences for participants. Identifying these potential conflicts of 

interest requires more detailed disclosure than is available today. 
27 

Participants Need Better Fee Disclosure 

Plan participants will also benefit from improved disclosure of fees. While Hewitt 

believes that comprehensive fee information should be readily accessible when requested, mandatory disclosures should be concise and provide information that is 

truly meaningful for the vast majority of participants. Fee disclosures to participants must be understandable without overloading the average participant with so 

much technical detail that the information is likely to be ignored or discarded. The 

worst-case scenario is that the disclosure actually discourages savings. 

Plan participants’ needs for expense disclosure are very different from their employers’ (or other plan fiduciaries) requirements. Before participants choose to contribute to the plan, the plan fiduciary has already selected service providers and investment funds for the plan. This means that most plan costs are determined before 

the participant is ever involved; thus the importance of full fee transparency for 

plan fiduciaries. It is also the plan fiduciary, and not the participant, that must regularly monitor and evaluate service providers, including investment managers and 

administrators. Service provider fee disclosure is of primary importance to enable 

plan fiduciaries to keep plan costs low and maximize retirement income for participants. 

Hewitt believes that participants should be informed if and how administrative 

fees are paid by the plan, regardless of how fees are charged, whether bundled or 

unbundled. As with disclosures to plan fiduciaries, fee disclosures from all service 

providers to plan participants should be available on a uniform basis to allow for 

meaningful comparisons. 

Mandatory disclosure to plan participants should aid them in understanding fees 

on their account balances, but not confuse their decision making or overwhelm them 

with information they cannot control. For example, if participants simply move their 

portfolios toward the lowest-cost funds solely based on the fee information provided, 

this may decrease their retirement readiness. Many participants do not have the 

basic financial acumen to understand the importance of diversifying their portfolio 

and changing that asset allocation over time based on their changing personal circumstances. Greater disclosure will not solve these critical awareness issues. This 

is when investment advice, education, and certain plan design features can make 

a real difference.6 Objective advice can aid participants in maximizing their investment returns and achieving a level of risk that is acceptable to the individual participants, given their unique circumstances. However, the regulatory oversight provided in the DOL investment advice regulations currently under review is not sufficient. Unlike fee disclosure to plan fiduciaries, greater disclosure under the investment advice rules without greater regulatory scrutiny may not do enough to protect 

plan participants. Hewitt believes that all but the most sophisticated plan participants could benefit from more investment advice and that unbiased investment advice should be readily available. 

The 401(k) Fair Disclosure for Retirement Security Act of 2009 Can Help 

Hewitt supports Chairman Miller’s bill because its provisions enhance the retirement security of Americans. The bill addresses the key disclosure gaps from both 

a plan sponsor and a plan participant perspective and does not allow service provider exemptions that get in the way of full transparency. 

Full Fee Disclosure 

The 401(k) Disclosure for Retirement Security Act of 2009 would require service 

providers to break out total costs into the main fee categories: investment management, administrative/recordkeeping, transactional, and other. The bill would also require disclosure of all fees paid to affiliates and subcontractors in a bundled fee arrangement. This will allow plan sponsors to readily compare the services of different 

types of providers in a uniform manner leading to better control and management 

of fees. By comparison, the Department of Labor’s 2008 proposed service provider 

fee regulations permit bundled providers to report all fee types in the aggregate. 

Under the proposed regulations, fiduciaries would not be able to uniformly evaluate 

services offered by different providers, severely impairing their ability to negotiate 

lower fees for plan participants. 

Potential Conflicts of Interest 

The 401(k) Disclosure for Retirement Security Act of 2009 would also requires disclosure of any material personal, business, or financial relationship with the plan 

sponsor, plan, or other service provider (or affiliate) that benefits the service provider. The service provider must also disclose the extent to which it uses its own 

proprietary investment products. These provisions would go far to arm plan spon-
28 

sors with the information they need to identify any potential conflicts of interest 

that could disadvantage their plan participants over time. 

Meaningful Participant Disclosures 

The 401(k) Disclosure for Retirement Security Act of 2009 would provide for uniform and transparent disclosure of fees to participants, regardless of how plan services are provided (e.g., bundled or unbundled). This is a good starting point, although we believe that the mechanics of participant fee disclosure merit further review and discussion. On the other hand, the proposed DOL regulations on participant fee disclosure appear to treat disclosure very differently, depending on how 

plan services are packaged. Under these rules, it is quite likely that plan participants in a plan with bundled services may never realize that they are paying for 

plan administration or how much. In contrast, plans with independent plan recordkeepers would be required to provide a special quarterly disclosure of administrative 

fees. Such different disclosure standards are inconsistent, misleading, and lack the 

transparency that participants deserve and increasingly demand. 

Conclusion 

In closing, Mr. Chairman and Members of the Subcommittee, Hewitt believes that 

complete fee transparency is a key factor in maintaining a strong defined contribution retirement plan system. 

Knowledge is power, and by arming plan sponsors with complete and comparable 

information, they will be better equipped to negotiate and provide high-quality plans 

for their participants at reasonable costs. The current economic and financial environment makes it even more important to provide uniform fee transparency in 2009. 

Hewitt would be pleased to offer our data analysis, our experience, and our consulting and administration expertise in helping the Committee complete its work on 

this issue. 

Thank you. 

ENDNOTES

1 Hewitt Associates, Trends and Experience in 401(k) Plans (2007) 

2Deloitte, Defined Contribution 401(k) Fee Study (Spring 2009), conducted for the Investment 

Company Institute 3For example, Christine Benz, director of personal finance at Morningstar Inc., stated that 

‘‘In almost every study we’ve run, expenses show up as a very significant predictor of future 

performance.’’ In other words, lower costs are an indicator of high performance. http://online.wsj.com/article/SB122099798601116727.html?mod=googlenews—wsj; See also, Haslam, 

John, Baker, H. Kent, and Smith, David M., Performance and Characteristics of Actively Managed Retail Mutual Funds with Diverse Expense Ratios, Financial Services Review, Vol. 17, No. 

1, 2008 http://papers.ssrn.com/sol3/papers.cfm?abstract—id=1155776 4 Hewitt Associates, Trends and Experience in 401(k) Plans (2007) 

5 Hewitt’s Statement for the Record to the U.S. Senate Special Committee on Aging Hearing 

on ‘‘Saving Smartly for Retirement: Are Americans Being Encouraged to Break Open the Piggy 

Bank,’’ July 16, 2008 6 Hewitt Associates, Building the Ideal 401(k) Plan: Providing Optimal Accumulation and Effective Distribution (October 2008) 

Chairman ANDREWS. Ms. Borland, thank you for your contribution to this debate, and to our committee’s consideration. 

Mr. Onorato, welcome. It is nice to have you with us. 

STATEMENT OF JULIAN ONORATO, CEO AND CHAIRMAN OF 

THE BOARD, EXPERTPLAN, INC. 

Mr. ONORATO. Thank you. 

Good morning. My name is Julian Onorato. I am the chief executive of ExpertPlan, based in East Windsor, New Jersey. My firm 

is a national leader in the small-business 401(k)-plan market, providing retirement-plan services for thousands of businesses and 

their employees throughout the country. 

I am here today on behalf of the Council of the Independent 

401(k) Recordkeepers, which is an organization of the Independent 

Retirement Plan Service Providers. CIKR is a sister organization 

of the American Society of Pension Professionals and Actuaries, 

which has thousands of members nationwide. I am also speaking 
29 

on behalf of the National Association of Independent Retirement 

Plan Advisors, a national organization of firms that provide independent investment advice to retirement plans and participants. 

In order to make informed decisions, we believe that plans and 

plan participants should be provided with all the information that 

they need about fees and expenses in their 401(k) plans, in a form 

that is clear, uniform and useful. Therefore, we strongly support 

the 401(k) Fair Disclosure for Retirement Security Act of 2009. 

And we thank you, Mr. Chairman, and members of the committee, for your leadership on this important issue. The bill will go 

a long way toward addressing some legitimate concerns about the 

system, and make 401(k) plans work better for American workers 

who depend on them. 

The 401(k)-plan industry delivers investments and services to 

plan sponsors and their participants, using two primary business 

models, commonly known as ‘‘bundled’’ and ‘‘unbundled.’’ 

Bundled providers are large financial-services companies whose 

primary business is manufacturing and selling investments. They 

bundle their proprietary investment products, with plan services, 

into a package that is sold to plan sponsors. 

By contrast, unbundled, or independent, providers are primarily 

in the business of offering retirement-plan services. They will couple such services with a universe of unaffiliated investment alternatives, whether a firm is a bundled investment firm, or an 

unbundled independent, this full scope of services offered to plans 

and their participants is the same. 

In other words, the only real difference to the plan sponsor is 

whether the services are provided by just one firm, or more than 

one firm. Under ERISA, the business owner, as a plan fiduciary, 

must follow prudent practices, when choosing retirement-plan service providers. This prudent evaluation should include an apples-toapples comparison of services provided, and the costs associated 

with those services. 

The only way to determine whether a fee for a service is reasonable, is to compare it to a competitor’s fee for that service. 

In addition, if the breakdown of fees is not disclosed, plan sponsors will not be able to evaluate the reasonableness of fees as account balances grow. Take a $1 million plan serviced by a bundled 

provider that is only required to disclose a total fee of 125 basis 

points, or $12,500. 

If that plan grows to $2 million, the fee doubles to $25,000, although the level of plan services and the costs of providing such 

services have remained the same. 

The bundled providers want to be exempt from uniform disclosure rules. Simply put, they want to be able to tell business owners 

that they can offer retirement-plan services for free. Of course, 

there is no free lunch. And there is no such thing as a free 401(k) 

plan. 

In reality, the cost of these free plan services are being shifted 

to participants through the investment-management fees, charged 

on the proprietary investments; in many cases, without their 

knowledge. 

As provided in the bill, by breaking down plan fees into only 

three simple categories—investment management, record-keeping 
30 

and administration, and selling costs—we believe business owners 

will have he information they need to satisfy their ERISA duties. 

The retirement security of employees is completely dependent 

upon the business owner’s choice of retirement-plan service providers. If the fees are unnecessarily high, the workers’ retirement 

income will be severely impacted. It is imperative that the business 

owner have the best information to make the best choice. 

We commend Chairman Miller and Andrews for the uniform application of new disclosure rules to all 401(k)-plan service providers, in their bill. The last topic I want to touch on is independent investment advice, which this committee examined at a 

hearing last month. 

With the growth of 401(k) plans, the importance of investment 

advice to participants of retirement plans, has become increasingly 

clear. The majority of Americans are not experts on how to appropriately invest their retirement savings. 

We believe that working Americans are best served by independent investment advice, provided by qualified advisors; not conflicted investment advice, where the advisor has a financial interest in what investment choices to recommend. 

In my over two decades of experience in this industry, I can absolutely testify that participant rates of return are better when 

served by independent advisors. 

We commend Chairman Andrews for his recent legislation, promoting independent advice for retirement plans and participants. 

Thank you again, and I welcome your questions. 

[The statement of Mr. Onorato follows:] 

Prepared Statement of Julian Onorato, CEO, ExpertPlan, Inc., on Behalf of 

CIKR, ASPPA and NAIRPA 

Thank you, Mr. Chairman and members of the subcommittee. My name is Julian 

Onorato and I am the CEO of ExpertPlan, Inc. based in East Windsor, New Jersey. 

ExpertPlan was founded as a technology innovator in the administration of retirement programs. With continued investment in operating efficiencies and client service, ExpertPlan is a leader in the defined contribution market, providing retirement 

services for thousands of companies and organizations with billions of dollars in retirement assets. 

I am here today on behalf of the Council of Independent 401(k) Recordkeepers 

(CIKR), the American Society of Pension Professionals & Actuaries (ASPPA), and 

the National Association of Independent Retirement Plan Advisors (NAIRPA) to testify on important issues relating to 401(k) plan fee disclosure addressed in Chairmen Miller and Andrews’ legislation, the 401(k) Fair Disclosure for Retirement Security Act of 2009. CIKR, ASPPA and NAIRPA strongly support the premise that 

plans and plan participants should be provided with all the information they need 

about fees and expenses in their 401(k) plans-in a form that is clear, uniform and 

useful-to make informed decisions about how to invest their retirement savings plan 

contributions. This information is critical to millions of Americans’ ability to invest 

in a way that will maximize their retirement savings so that they can achieve adequate retirement income. Accordingly, CIKR, ASPPA and NAIRPA strongly support 

the 401(k) Fair Disclosure for Retirement Security Act of 2009. 

CIKR, ASPPA and NAIRPA also believe that working Americans should not have 

their retirement assets exposed to conflicted investment advice where the adviser 

has a financial interest in what investment choices to recommend to the plan and 

participants. Instead, American workers should have access to independent investment advice provided by qualified advisers. This issue was addressed by this Committee at a hearing on March 24. CIKR, ASPPA and NAIRPA strongly support legislation recently introduced by Chairman Andrews that would promote the provision 

of independent advice to plans and participants. 

CIKR is a national organization of 401(k) plan service providers. CIKR members 

are unique in that they are primarily in the business of providing retirement plan 
31 

services as compared to larger financial services companies that primarily are in the 

business of selling investments and investment products. As a consequence, the 

independent members of CIKR, many of whom are small businesses, make available 

to plan sponsors and participants a wide variety of investment alternatives from 

various financial services companies without bias or inherent conflicts of interest. 

By focusing their businesses on efficient retirement plan operations and innovative 

plan sponsor and participant services, CIKR members are a significant and important segment of the retirement plan service provider marketplace. Collectively, the 

members of CIKR provide services to approximately 70,000 plans covering three 

million participants holding in excess of $130 billion in assets. ASPPA is a national 

organization of more than 6,500 members who provide consulting and administrative services for qualified retirement plans covering millions of American workers. 

ASPPA members are retirement professionals of all disciplines, including consultants, investment professionals, administrators, actuaries, accountants and attorneys. Our large and broad-based membership gives ASPPA a unique insight into 

current practical applications of ERISA and qualified retirement plans, with a particular focus on the issues faced by small- to medium-sized employers. ASPPA’s 

membership is diverse but united by a common dedication to the employer-sponsored retirement plan system. NAIRPA is a national organization of firms, not affiliated with financial services companies, which provide independent investment advice to retirement plans and participants. NAIRPA’s members are registered investment advisors whose fees for investment advisory services do not vary with the investment options selected by the plan or participants. In addition, NAIRPA members commit to disclosing expected fees in advance of an engagement, reporting fees 

annually thereafter and agreeing to serve as a plan fiduciary with respect to all 

plans for which it serves as a retirement plan advisor. Background on 4011(k) Plan 

Fee Disclosure Legislation CIKR, ASPPA and NAIRPA strongly support the House 

Education and Labor Committee’s interest in examining issues relating to 401(k) fee 

disclosure and the impact of fees on a plan participant’s ability to save adequately 

for retirement. We are particularly pleased with the reintroduction of the 401(k) 

Fair Disclosure for Retirement Security Act of 2009. This bill will shine much needed light on 401(k) fees. 

We also are encouraged by the introduction of two other pieces of legislation by 

Congress on the fee disclosure issue. On February 9, 2009, Senators Tom Harkin 

(D-IA) and Herb Kohl (D-WI) reintroduced their 401(k) plan fees legislation, S. 401, 

the ‘‘Defined Contribution Fee Disclosure Act of 2009.’’ In addition, H.R. 3765, the 

‘‘Defined Contribution of Plan Fee Transparency Act,’’ was introduced on October 4, 

2007 and sponsored by House Ways and Means Committee Subcommittee on Select 

Revenue Measures Chairman Richard Neal (D-MA) and co-sponsored by Rep. John 

Larson (D-CT). 

We support all three bills’ even-handed application of new disclosure rules to all 

401(k) plan service providers. Further, we also encourage you to strike the right balance between disclosure information appropriate for plan sponsors versus plan participants. To demonstrate how both of these goals can be accomplished, we have attached to these comments two sample fee disclosure forms for your consideration— 

one for plan fiduciaries and another for plan participants. Each is tailored to provide 

plan fiduciaries and plan participants with the different sets of information on fees 

that are needed to make informed decisions. 

Department of Labor Regulations 

The Department of Labor (DOL) has finalized one 401(k) fee disclosure project, 

a revised Form 5500, including a revised Schedule C, which was effective beginning 

on January 1, 2009. In December 2007, DOL issued proposed regulations under 

ERISA §408(b)(2) which would have provided sweeping changes on what constitutes 

a reasonable contract or arrangement between service providers and plan fiduciaries. The proposed rules would have required enhanced disclosures for service 

providers to 401(k) plan fiduciaries. However, the proposed regulations would have 

required only an aggregate disclosure of compensation and fees from bundled service 

providers, with narrow exceptions, and would not have required a separate, uniform 

disclosure of the fees attributable to each part of the bundled service arrangement. 

In July 2008, DOL also issued proposed regulations under ERISA §404(a) setting 

forth a set of new participant fee disclosure requirements. The proposed rules would 

have required the disclosure to plan participants and beneficiaries of identifying information, performance data, benchmarks and fee and expense information of plan 

investment options in a comparative chart format, plus additional information upon 

request. However, no information on investment fees actually incurred with respect 

to a participant’s account would have to be disclosed. Further, administration 

charges embedded in investment-related fees would not have to be separately dis-
32 

1We note that House Education and Labor Committee Chairman Miller, House Education and 

Labor Subcommittee Chairman Andrews, Senate HELP Committee Chairman Kennedy (D-MA), 

Special Aging Committee Chairman Herb Kohl (D-WI) and Senate HELP Committee Member 

Tom Harkin (D-IA) also submitted joint comment letters to the DOL on both the 408(b)(2) regulation and participant fee disclosure regulation. These comments expressed concerns about the 

DOL’s approach to these disclosure initiatives and requested additional actions be taken to protect plan participant and beneficiaries. 

closed. On January 20, Rahm Emanuel, assistant to President Obama and White 

House Chief of Staff, signed an order requiring the withdraw from the Office of the 

Federal Register (OFR) of all proposed or final regulations that had not been published in the Federal Register so that they could be reviewed and approved by a 

department or agency head. The proposed ERISA § 408 (b)(2) and participant fee 

disclosure regulations were sent to the Office of Management and Budget (OMB) in 

final rule form for review and approval. However, the regulations had not yet been 

released by OMB or sent to the OFR as of January 20. Therefore, the regulations 

have been stopped by the Emanuel order. ASPPA and CIKR submitted comprehensive comment letters to the DOL on both the 408(b)(2) and participant fee disclosure 

proposed regulations.1 In both of these comment letters, we made a number of significant recommendations to improve each of the disclosure regimes in order to ensure that understandable and meaningful disclosure is provided, and stressed the 

need for uniform disclosure requirements—among all types of service providers. 

The 401(k) plan industry delivers investments and services to plan sponsors and 

their participants using two primary business models-commonly known as ‘‘bundled’’ 

and ‘‘unbundled.’’ Generally, bundled providers are large financial services companies whose primary business is selling investments. They ‘‘bundle’’ their proprietary 

investment products with affiliate-provided plan services into a package that is sold 

to plan sponsors. By contrast, ‘‘unbundled,’’ or independent, providers are primarily 

in the business of offering retirement plan services. They will couple such services 

with a ‘‘universe’’ of unaffiliated, non-proprietary, investment alternatives. Generally, the costs of the bundled and unbundled arrangements are comparable or 

even slightly less in the unbundled arrangement. Under current business practices, 

bundled providers disclose the cost of the investments to the plan sponsor but do 

not break out the. cost of the administrative services. Unbundled providers, however, disclose both, since the costs are paid to different providers (i.e., administrative costs paid to the independent provider and investment management costs paid 

to the managers of the unaffiliated investment alternatives). 

Bundled and unbundled providers have different business models, but for any 

plan sponsor choosing a plan, the selection process is exactly the same. The plan 

sponsor deals with just one vendor, and one model is just as simple as the other. 

Plan sponsors must follow prudent practices and procedures when they are evaluating service providers and investment options. This prudent evaluation should include an ‘‘apples to apples’’ comparison of services provided and the costs associated 

with those services. The only way to determine whether a fee for a service is reasonable is to compare it to a competitor’s fee for that service. 

The retirement security of employees is completely dependent upon the business 

owner’s choice of retirement plan service providers. If the fees are unnecessarily 

high, the workers’ retirement income will be severely impacted. It is imperative that 

the business owner have the best information to make the best choice. 

While the DOL’s proposed ERISA §408(b)(2) rules (relating to whether a contract 

or arrangement is reasonable between a service provider and plan fiduciary) would 

have required enhanced disclosures for service providers to 401(k) plan fiduciaries, 

the proposed regulation would have required only an aggregate disclosure of compensation and fees from bundled service providers, with narrow exceptions, and 

would not have required a separate, uniform disclosure of the fees attributable to 

each part of the bundled service arrangement. Although we appreciated the DOL’s 

interest in addressing fee disclosure, we do not believe that any requirement that 

benefits a specific business model is in the best interests of plan sponsors and participants. 

Without uniform disclosure, plan sponsors will have to choose between a single 

price business model and a fully disclosed business model that will not permit them 

to appropriately evaluate competing provider’s services and fees. Knowing only the 

total cost will not allow plan sponsors to evaluate whether certain plan services are 

sensible and reasonably priced and whether certain service providers are being overpaid for the services they are rendering. 

In addition, if the breakdown of fees is not disclosed, plan sponsors will not be 

able to evaluate the reasonableness of fees as participant account balances grow. 

Take a $1 million plan serviced by a bundled provider that is only required to dis-
33 

2 2007 edition of the 401(k) Averages Book, published by HR Investment Consultants. 

close a total fee of 125 basis points, or $12,500. If that plan grows to $2 million, 

the fee doubles to $25,000, although the level of plan services and the costs of providing such services have generally remained the same. 

The bundled providers want to be exempt from adhering to uniform disclosure 

rules and regulations. Simply put, they want to be able to tell plan sponsors that 

they can offer retirement plan services for free while independents are required to 

disclose the fees for the same services. Of course there is no ‘‘free lunch,’’ and there 

is no such thing as a free 401(k) plan. In reality, the costs of these ‘‘free’’ plan services are being shifted to participants through the investment management fees 

charged on the proprietary investment alternatives, in many cases without their 

knowledge. The uniform disclosure of fees is the only way that plan sponsors can 

effectively evaluate the retirement plan they will offer to their workers. To show it 

can be done, attached is a sample of how a uniform, plan sponsor disclosure would 

look. By breaking down plan fees into only three simple categories—investment 

management, recordkeeping and administration, and selling costs and advisory 

fees—we believe plan sponsors will have the information they need to satisfy their 

ERISA duties. We commend Chairmen Miller and Andrews for the even-handed application of new disclosure rules to all 401(k) plan service providers in the 401(k) 

Fair Disclosure for Retirement Security Act of 2009. Uniform disclosure of fees, as 

provided by the Miller-Andrews legislation, will allow plan sponsors to make informed decisions and satisfy their ERISA duties. The breakdown of fees required in 

the legislation also will allow plan sponsors to assess the reasonableness of fees by 

making ‘‘apples to apples’’ comparison of other providers and will allow fiduciaries 

to determine whether certain services are needed, leading to potentially even lower 

fees. 

The level of detail in the information needed by 401(k) plan participants differs 

considerably from that needed by plan fiduciaries. Plan participants need clear and 

complete information on the investment choices available to them through their 

401(k) plan, and other factors that will affect their account balance. In particular, 

participants who self-direct their 401(k) investments must be able to view and understand the investment performance and fee information charged directly to their 

401(k) accounts in order to evaluate the investments offered by the plan and decide 

whether they want to engage in certain plan transactions. The disclosure of investment fee information is particularly important because of the significant impact 

these fees have on the adequacy of the participant’s retirement savings. In this regard, studies have shown that costs related to the investments account for between 

roughly 87 percent and 99 percent of the total costs borne by participant accounts, 

depending on the number of participants and amount of assets in a plan.2

CIKR, ASPPA and NAIRPA urge that any new disclosure requirements to plan 

participants also be uniform, regardless of whether the service provider is bundled 

or unbundled. In July 2008, the DOL issued proposed regulations on participant fee 

disclosure that required the annual disclosure to plan participants and beneficiaries 

of identifying information, performance data, benchmarks and fee and expense information in a comparative chart format, plus additional information upon request. 

The proposed regulation further required an initial and annual explanation of fees 

and expenses for plan administrative services to plan participants and beneficiaries 

(disclosed on a percentage basis) except to the extent included in investment-related 

expenses. The effect of this exception would have been to highlight administrative 

costs for one business model (unbundled) over another (bundled), which would result 

in a disparity of treatment and confusion. In most plans, the administrative costs 

of recordkeeping, reporting, disclosure and compliance are borne, at least to some 

extent, by the investments. For bundled providers, the entire administrative cost is 

generally covered by investment-related fees charged on proprietary investments. 

For an unbundled provider, however, those costs are often paid through revenue 

sharing received from unrelated investments, which, in many instances, is not sufficient to offset the entire cost. Accordingly, for unbundled providers, there would be 

a direct administrative charge assessed against participants’ accounts. In effect, the 

DOL’s proposed requirement to disclose administrative expenses except to the extent included in investment-related expenses would have imposed an additional and 

burdensome disclosure requirement on unbundled service providers, whereas there 

would be no such disclosure in the case of a bundled service provider. This would 

be misleading to most plan participants. In only the unbundled case would participants see separate administrative costs charged against his or her account, while 

with bundled providers, participants would be given the impression there were no 

administrative costs at all as the administrative costs would be imbedded in the investment costs. 
34 

Accordingly, CIKR, ASPPA and NAIRPA recommend that the disclosure of administrative and investment information be provided on a uniform basis in any legislation considered by Congress. We believe that administrative fee information provided on the same annualized basis as investment costs would provide participants 

a more complete picture of the total costs of the plan at a single time, regardless 

of the business model of a service provider. 

It also is important to recognize that there is a cost to any disclosure, and that 

cost is most often borne by the plan participants themselves. To incur costs of disclosure of information that will not be relevant to most participants will unnecessarily 

depress the participants’ ability to accumulate retirement savings within their 

401(k) plans. Thus, appropriate disclosure must be cost-effective, too. The result of 

mandatory disclosure should be the provision of all the information the plan participant needs, and no more. To require otherwise would unjustifiably, through increased costs, reduce participants’ retirement savings. Those participants who want 

to delve further into the mechanics and mathematics of the fees associated with 

their investment choices and other potential account fees should have the absolute 

right to request additional information-it should be readily available on a Web site, 

or upon participant request. This will take care of those participants who feel they 

need more detailed information. For the Committee’s consideration, ASPPA, CIKR 

and NAIRPA have attached a sample fee menu to the testimony that we believe 

would contain, in a clear and simple format, all the information a plan participant 

would need to make informed decisions about his or her plan.’ 

The 401(k) Fair Disclosure for Retirement Security Act of 2009 requires two participant disclosure requirements: a ‘‘before-the-fact’’ notice of investment options and 

a revised quarterly statement requirement. The notice of investment options requires specific information be provided with respect to each available investment option, such as the investment option’s risk level. The notice also must include a plan 

fee comparison chart that includes a comparison of actual service and investment 

charges that will or could be assessed against the participant’s account. The chart 

must set fees into four categories: (1) fees depending on a specific investment option 

selected by the participant (including expense ratio and investment-specific asset 

based fees); (2) fees assessed as a percentage of total assets; (3) administrative and 

transaction based fees; and (4) any other charges deducted not described in the first 

three categories. The legislation also would amend the existing quarterly benefit 

statement requirement to mandate inclusion of specific information attributable to 

each participant’s account, including starting balances and investment earnings or 

losses. 

We are very pleased that the disclosure requirements for plan participants in the 

401(k) Fair Disclosure for Retirement Security Act of 2009 are uniform, regardless 

of whether the service provider is bundled or unbundled. This will provide participants with a complete picture of total costs and avoid confusion. We also commend 

Chairmen Miller and Andrews for the legislation’s plan fee comparison chart requirement. This chart is similar to the sample participant fee menu that is attached 

to this testimony. It will provide participants with an easy to understand summary 

of fees which will allow them to make informed decisions about how to invest their 

retirement saving plan contributions. However, we ask the Committee to reconsider 

the level of detail required for participants. It is important that participant disclosures be concise, meaningful and readily understandable—especially, since any new 

disclosure requirements will carry costs for participant disclosures. We also ask that 

the Committee consider defining ‘‘small plan’’, for purposes of permitting annual 

statements, as ‘‘fewer than 100’’ participants and beneficiaries, as in H.R. 3185 

passed by the Committee in the last Congress. Many small employers with more 

than 25 participants are struggling in the current economy, and the additional cost 

of more frequent reporting may discourage them from maintaining the company’s 

401(k) program. 

ERISA and the Internal Revenue Code generally prohibit plan fiduciaries from 

rendering any investment advice to plan participants and beneficiaries that would 

result in the payment of additional fees to the fiduciaries or their affiliates. The 

Pension Protection Act of 2006 (PPA) §601 provided a statutory prohibited transaction exemption to the rule [codified at ERISA §§ 408 (b)(14) and 408(g) and IRC 

§§ 4975(d)(17) and 4975(f)(8)] for certain transactions that may occur in connection 

with the provision of ‘‘eligible investment advice’’ by a ‘‘fiduciary adviser,’’ subject 

to specific requirements. In particular, the final PPA investment advice provision allowed two specific permissible investment advice exceptions: (1) certain ‘‘fee-leveling’’ arrangements; or (2) certified computer model arrangements. 

On August 22, 2008, the Department of Labor (DOL) issued proposed investment 

advice regulations interpreting PPA §601. On the same date, the DOL issued a separate prohibited transaction class exemption (Class Exemption) that provided relief 
35 

for certain transactions that went beyond the scope of relief contemplated in the 

statutory language. DOL issued final investment advice regulations (Final Regulation) on January 21, 2009, that incorporated the separate Class Exemption. into the 

Final Regulation. However, the status of these regulations is unclear at this point. 

In response to Rahm Emanuel’s memorandum directing Agency Heads to consider 

extending for 60 days the effective date of regulations that had been published in 

the Federal Register but not yet taken effect, on February 4, 2009 the DOL proposed extending the effective date for the investment advice rules from March 23 

until May 22, 2009 to allow the public to comment on whether the rules raise significant policy and legal issues. ASPPA and CIKR submitted comments in support 

of the extended effective date due to the uncertainty surrounding the final disposition of the regulations. On March 19, the DOL issued a final rule delaying the effective date to May 22. The Final Regulation’s interpretation of the statutory exemption in PPA will make it more likely that participants and beneficiaries may obtain 

assistance in diversifying investments and appropriately reflecting their own risk 

tolerances and investment horizons in asset allocations. However, the portion of the 

Final Regulation which implements the non-statutory Class Exemption (i.e., the portion that does not relate to the statutory exemption from the prohibited transaction 

rule enacted in PPA) may expose participants and beneficiaries to conflicted investment advice without sufficient protection from the effects of an adviser’s conflicts 

of interest. Furthermore, this exemption is contrary to Congressional intent. 

Accordingly, ASPPA, CIKR and NAIRPA recommend that the DOL withdraw the 

Class Exemption portion of the Final Regulation. The enactment of ERISA §§ 

408(b)(14) and 408(g) reflect Congressional desire to provide very limited relief for 

providing conflicted investment advice. The Final Regulation expands this relief in 

a manner that does not provide adequate protection to participants and beneficiaries. 

With the growth of participant-directed individual account plans, the importance 

of investment advice to participants and beneficiaries of retirement plans has become increasingly clear. The majority of Americans are not experts on how to appropriately invest their retirement savings. However, due to the shift from defined benefit to defined contribution plans, many Americans are required to do just that. 

CIKR, ASPPA and NAIRPA believe that working Americans are best served by 

independent investment advice provided by qualified advisers, not conflicted investment advice where the adviser has a financial interest in what investment choices 

to recommend. We believe that participants’ rates of return are better when served 

by an independent adviser. We commend Chairmen Andrews for his recent legislation promoting independent advice for retirement plans and participants. 

Summary 

The retirement system in our country is the best in the world, and competition 

has fostered innovations in investments and service delivery. However, important 

changes are still needed to ensure that the retirement system in America remains 

robust and effective into the future. By supporting plan sponsors through uniform 

disclosure of fees and services and by encouraging plan sponsors to provide independent investment advice to participants, American workers will have a better 

chance at building retirement assets and living the American dream. 

CIKR, ASPPA and NAIRPA applaud the House Education and Labor Committee’s 

leadership in exploring issues related to 401(k) plan fee disclosure and independent 

investment advice and in introducing the 401(k) Fair Disclosure for Retirement Security Act of 2009. The Committee’s consistent focus on retirement issues over the 

years has advanced improvements in the employersponsored pension system and led 

to an increased concern about the retirement security of our nation’s workers. CIKR, 

ASPPA and NAIRPA look forward to working with Congress and the Administration 

on these important issues. 
36 

ATTACHMENTS: SAMPLE FEE DISCLOSURE FORM (PLAN SPONSORS)
37 

Chairman ANDREWS. Thank you very much, Mr. Onorato, for 

your contribution. 

Mr. Chambers, welcome back. We always appreciate your valued 

and constructive input in anything we do. Good to have you with 

us. 
38 

STATEMENT OF ROBERT G. CHAMBERS, FORMER CHAIRMAN 

OF THE BOARD, AMERICAN BENEFITS COUNCIL AND PARTNER, MCGUIRE WOODS 

Mr. CHAMBERS. Thank you. It has been a pleasure so far—remains to be seen. 

And thank you to all of the members of the subcommittee, and 

the interlopers from the full committee, for the invitation. 

My name is Robert Chambers, and I am a partner in the international law firm of McGuire Woods. 

I hate to admit it, but I have advised clients with respect to 

401(k) plan issues, since section 401(k) was added to the Internal 

Revenue code in 1978. I am also, as you noted, the past chair of 

the board of directors of the American Benefits Council, a trade association, on whose behalf I am testifying today. 

In a nutshell, the council’s goal for 401(k) plans is an effective 

system that functions in a transparent manner, and provides 

meaningful benefits at a fair price. To accomplish this, we support 

further improvement of the rules relating to plan-fee disclosure. 

We very much appreciate the open and constructive approach 

that the committee used in amending H.R. 3185, prior to its adoption—or approval, rather—by the committee, last year. And we especially appreciate the openness to our ideas on the part of Chairman Miller and Mr. McKeon, Mr. Andrews, and Mr. Kline. 

We are equally enthusiastic about the current bill, in that it includes a number of improvements to the proposed legislation, many 

of which are listed in our written testimony. 

While our members continue to develop measures to ensure that 

fee levels are fair and reasonable for participants, there is room for 

improvement. 

First, I am going to address liability issues, then suggest a few— 

Mr. Miller, I was going to use the word, ‘‘tweaks’’—perhaps, ‘‘adjustments’’—to the bill—and, finally, make a request regarding the 

minimum-investment option. 

The principal concern of many plan sponsors in this area relates 

to proliferating litigation, and the potential liability of plan sponsors and fiduciaries. 

Over the past few years, we have seen significant growth in planfee litigation involving defined-contribution plans. Plan sponsors 

cannot afford to take legal compliance lightly. All litigation—even 

litigation where there has been no wrongdoing—is extremely costly. 

Plan sponsors are especially frustrated by so-called ‘‘strike suits.’’ 

These are suits in which litigation is filed ostensibly for the purpose of surviving a motion to dismiss, causing the sponsor to consider a large settlement, in lieu of, perhaps, paying even larger litigation expenses in defending the action to its conclusion. 

The effect of this litigation on plan sponsors has been very dramatic. It is a drain on resources and time. It interferes with sound 

business planning. And, frankly, it undermines retirement security 

by reducing sponsors’ commitment to providing retirement programs. 

And, equally important, we want to correct the misimpression of 

those who view litigation as a positive means to vindicate employee 

rights, and to transfer value to employees. 
39 

Fee litigation largely transfers value to the legal system, and results in the transfer of remarkably little value to employees. It 

leads to lower employer contributions, higher fees, reduced account 

balances, and less-comprehensive services for all participants. 

So here are four of our members’ specific liability concerns, in 

areas covered by the bill. 

First, there should be no liability where an employee discloses to 

participants fee information that has been provided by a service 

provider, and that turns out to be incorrect. 

Second, handling unbundled information can be confusing. The 

bill would require a bundled service provider to disclose separate 

fees for administrative and investment services, even though the 

bundled service provider does not actually offer those services separately. 

Since the only commercially reasonable action for plan sponsors 

is to compare the total cost of bundled and unbundled services, 

plan sponsors need clarification that their taking this action will 

satisfy their fiduciary duties. And, of course, further, the bill needs 

to provide similar protection when sponsors pass this unbundled 

information on to participants. 

Third, the bill needs to make clear that if the fiduciary obtains 

and discloses the information as required by ERISA, it will have 

satisfied those fiduciary duties. And, finally, minor inadvertent errors—for example, in disclosing the fees associated with an investment option—should not provide participants with a cause of action. 

Therefore, we ask that you add these protections to the fee legislation, as you consider it. 

I will now turn to fee-disclosure issues within the bill. While participants need a clear, simple short disclosures that will, effectively, 

communicate key points on whether to participate and how to invest, fiduciaries need more detailed information, since it is their 

duty to understand fully the options available, and to make prudent choices on behalf of all participants. 

Despite the many improvements to the current bill, the council 

does believe that additional changes would be helpful. And here are 

three of them that are described at greater length in our written 

testimony. 

First, the rules should be flexible enough to accommodate the full 

range of possible investment options, including self-directed brokerage accounts. Second, payments from one service provider to its affiliated service provider are not really revenue sharing, and should 

not be required to be disclosed without the fiduciary protection that 

I described earlier. And, finally, plan sponsors that pay fees should 

not be subject to any of the disclosure rules. 

One last point with regard to the minimum-investment option: 

We note that it is considerably different than the option described 

in H.R. 3185, and we have developed several questions regarding 

the revised concept in the very brief period that we have had to review the draft language. Therefore, we request another opportunity 

to meet with members of the subcommittee, in order to obtain a 

better understanding of what the option entails and, of course, to 

discuss our questions. 
40 

So that is all. We thank you for this opportunity to share our 

views on the bill. And we look forward to continuing our very constructive dialogue on plan-fee disclosure, with both this subcommittee and the full committee. Thank you. 

[The statement of Mr. Chambers follows:] 

Prepared Statement of Robert G. Chambers, on Behalf of the American 

Benefits Council 

My name is Robert G. Chambers, and I am a partner in the international law 

firm of McGuireWoods LLP. I have advised clients with respect to 401(k) plan issues 

since 401(k) was added to the Internal Revenue Code in 1978. In that regard, my 

clients have included both large and small employers that sponsor 401(k) plans as 

well as many financial institutions that provide services to 401(k) plans. I am also 

a past chair of the Board of Directors of the American Benefits Council (‘‘Council’’), 

on whose behalf I am testifying today. The Council is a public policy organization 

representing plan sponsors, principally Fortune 500 companies, and other organizations that assist employers of all sizes in providing benefits to employees. Collectively, the Council’s members either sponsor directly or provide services to retirement and health plans that cover more than 100 million Americans. 

The Council appreciates the opportunity to present testimony with respect to 

401(k) plan fees. 401(k) plans have become a primary retirement plan for millions 

of Americans. Accordingly, it is more important than ever for all of us to take appropriate steps to ensure that 401(k) plans provide those Americans with retirement 

security. We recognize that the common goal is an effective 401(k) system that functions in a transparent manner and provides meaningful benefits at a fair price in 

terms of fees. We want to be as helpful to that process as possible. The Council Supports Enhanced Disclosure Requirements 

The Council supports improvement to the rules regarding plan fee disclosure. Effective plan fee disclosure to participants can enable them to understand their options and to choose those investments that are best suited to their personal circumstances. Disclosure to plan fiduciaries enables them to evaluate the reasonableness of the fees that are charged by their current provider(s) and to shop for and 

negotiate services and fees from other providers. 

While plan fiduciaries are receiving extensive information regarding various plan 

services and related fees and are using that information to negotiate effectively for 

lower fees, we believe more can and should be done to make that process even more 

effective. And while service providers are providing fiduciaries with tools that enable 

them to analyze fee levels and to provide meaningful information to participants, 

we believe more can be done to improve that exchange as well. Chairman Miller 

previously introduced H.R. 3185, a bill that addressed two key disclosure points: 

• The disclosure of plan fees by a service provider to a plan administrator, and 

• The disclosure of plan fees by a plan administrator to participants. We very 

much appreciate the open and constructive approach that the Committee used in 

amending H.R. 3185 prior to its approval by the Committee last year. We especially 

appreciate the openness to our ideas on the part of Chairman Miller, Ranking Member McKeon, Subcommittee Chairman Andrews, and Subcommittee Ranking Member Kline. The revised bill included many significant improvements to the proposed 

legislation, including: 

• Facilitating the use of electronic communication. 

• Reducing the extent of unbundling and number of categories required. 

• Permitting the use of estimated dollar amounts. 

• The recognition that investment options with a guaranteed rate of return need 

separate treatment. 

• A helpful delay in the effective date. 

• Outside the context of investment options, eliminating the need to disclose all 

subcontractors and payments to subcontractors. 

• Recognition of the liability issue with respect to service providers (reasonable 

reliance by service providers on information from unaffiliated service providers). 

These important improvements to H.R. 3185, considered in the previous Congress, 

are integral to making the disclosure of fees more effective. There are some specific 

proposals that we believe could be helpful in further improving the version of the 

401(k) Fair Disclosure for Retirement Security Act of 2009 that will be considered 

in the current Congress. 
41 

Protecting the Voluntary System 

Before discussing the proposals in the bill that we believe would benefit from further discussion and improvement, we would like to discuss what has become a top 

concern for many plan sponsors: plan sponsor and fiduciary liability. Over the past 

few years, we have seen significant growth in litigation involving defined contribution plans, much of which is directly related to plan fees. So, as this Subcommittee 

and the full Committee consider fee legislation, we urge you to also consider the nature of the fee-related litigation that has been filed and pay special attention to 

areas that could inadvertently increase litigation. 

Plan sponsors cannot afford, either financially or from a participant-relations 

standpoint, to take legal compliance lightly. All litigation, even litigation when there 

has been no wrongdoing, is very costly. Plan sponsors are especially frustrated by 

socalled ‘‘strike suits’’—litigation filed only for the purpose of surviving a motion to 

dismiss, causing the sponsor to consider a large settlement in lieu of incurring the 

even greater litigation expenses that defending the action would require. 

The effect of the fee and other defined contribution plan-related litigation on plan 

sponsors has been very significant. • Litigation is a drain on resources, time, and money. • It interferes with sound business planning. • It undermines retirement security by reducing the sponsor’s commitment to providing retirement programs. 

Equally important, we want to correct the misimpression of those who view substantial increases in litigation as a positive means to vindicate employee rights and 

to transfer value to employees. Realistically, litigation results in remarkably little 

transfer of value to employees. • The increased risk of litigation becomes factored into the cost of benefit plans 

through lower employer contributions and higher fees, resulting in reduced account 

balances. • The sponsor’s value is reduced, adversely affecting the accounts of participants 

in other plans whose accounts are directly or indirectly invested in the sponsor. • Services become less comprehensive. 

More litigation leads to increasingly reduced benefits for all participants. 

Here are a few of our members’ concerns regarding the 401(k) Fair Disclosure for 

Retirement Security Act of 2009, along with suggested solutions: • What happens if an employer discloses to participants fee information that has 

been provided by a service provider and that turns out to be incorrect? To have a 

workable system, a plan sponsor that reasonably relies on service provider information should not have any liability. • What is a plan sponsor required to do with ‘‘unbundled’’ information? The bill 

would require a bundled service provider to disclose separate fees for administrative 

and investment services. However, the bundled service provider does not offer such 

services separately. It is unclear how plan sponsors should use the information to 

compare services. They cannot compare it directly to actual unbundled fee structures, since the plan sponsors cannot purchase the services separately from the bundled service provider for the disclosed fee. The commercially reasonable action would 

be to compare the total cost of the bundled and unbundled services. Plan sponsors 

need clarification that this action will satisfy their fiduciary duties in this regard. 

• The bill should make clear that, by obtaining and disclosing the information required by ERISA, plan fiduciaries will have satisfied their fiduciary duties in this 

regard. 

• Minor, inadvertent errors, for example, in disclosing the fees associated with an 

investment option, should not provide participants with a cause of action. 

Disclosure by Plan Fiduciaries to Plan Participants 

I will now turn to fee disclosure issues in the bill. It is critical to emphasize that 

the disclosure rules should take into account the sharply different circumstances of 

participants and plan fiduciaries. Participants value clear, simple, short disclosures 

that effectively communicate the key points that they need to know to decide whether to participate and, if so, how to invest. Plan fiduciaries need more detailed information since it is their duty to understand fully the options available and to make 

prudent choices on behalf of all of plan participants. Despite the many improvements to the current bill, the Council does believe that some additional changes 

could be made. These include: 

• The rules must be flexible enough to accommodate the full range of possible investment options, including brokerage windows. 

• Disclosure of revenue sharing between two or more unrelated service providers 

should be required. Payments from one service provider to its affiliated service provider are not viewed as revenue sharing and should not be required to be disclosed. 
42 

• Fees paid by plan sponsors should not be subject to any of the disclosure rules. 

Where plan assets are not involved, ERISA’s rules are not implicated. 

• Fees charged to service providers by their own service providers have no relevance to plans and should not be required to be disclosed. 

• Unbundling for disclosure purposes requires the production of data that is not 

commercially useable raising questions about its value. 

Minimum Investment Option 

The decision to include a minimum investment option in the bill raises policies 

and questions that are distinct from those relating to fee disclosure. The minimum 

investment option in the bill is considerably different than the option described in 

H.R. 3185, and we have developed a number of questions regarding the new concept 

in the brief period that we have had to review the draft language. 

We look forward to meeting with members of the Subcommittee to obtain a better 

understanding of what the option entails and to discuss our concerns. 

Coordination of the Legislative and Regulatory Process 

In the effort to improve the fee disclosure rules, we believe that it is very important that the legislative and regulatory processes be coordinated to avoid unnecessary costs and confusion resulting from having to change systems multiple times. 

For example, it would be very harmful for the retirement system if one set of 

rules is created to be in effect for a year or two, only to be supplanted by a different 

set of rules. It is simply too confusing and too costly and not the best use of resources. Accordingly, we urge both Congress and the Department of Labor to consider how best to coordinate their efforts to avoid any adverse consequences. 

Effective Date 

Any revisions to the fee disclosure rules will require: 

• Interpretation and implementation by the Department of Labor, 

• Extensive systems changes, and 

• Development of effective communication methods. 

Accordingly, it is critical that legislation not be effective prior to plan years beginning at least 12 months after the publication of final regulations interpreting the 

legislation and that the Department of Labor be given a reasonable period of time 

to develop them. 

We welcome this opportunity to share our views on the bill. We look forward to 

continuing our very constructive dialogue on plan fee disclosure—the bill and any 

new amendments that will be considered—with this Subcommittee and the full 

Committee. 

Chairman ANDREWS. Thank you, Mr. Chambers. Your testimony 

was characteristically constructive and helpful. We appreciate it 

very, very much. 

Mr. CHAMBERS. Thank you. 

Chairman ANDREWS. Mr. Goldbrum, welcome to the committee. 

STATEMENT OF LARRY H. GOLDBRUM, EXECUTIVE VICE 

PRESIDENT AND GENERAL COUNSEL, THE SPARK INSTITUTE 

Mr. GOLDBRUM. Thank you. 

Chairman Andrews, Ranking Member Kline, honorable members 

of the committee, my name is Larry Goldbrum, and I am general 

counsel of the Spark Institute, an association that represents a 

broad cross-section of the retirement-plan industry. 

Our members collectively service more than 62 million plan participants. I am here to tell you that every one of my members believes that fee transparency will benefit plan participants, plan 

sponsors and, ultimately, the entire industry. We commend the 

committee for its efforts. 

Our goal today, and, hopefully, in future collaborative efforts, is 

to ensure that the approach taken in any legislation has a meaningful impact on plan participants, and sponsors’ ability to understand 401(k) fees, and does not unintentionally increase them. 
43 

We believe that the 401(k) plan system is a fundamentally 

sound, competitive and innovative system that provides the best 

way for Americans to save and invest for retirement, and provides 

good value for the fees that are charged. 

We believe that the best approach to fee disclosure will be one 

that is flexible, concept-based, and allows disclosure materials to be 

tailored with comparable information for all of the investment options that are available. 

Many misperceptions have emerged in the discussions about plan 

fees, which are addressed in a series of white papers we just released. Some of the misconceptions are that 401(k) plan fees are 

not a good value for American workers; plan fees do little more 

than erode retirement savings; service providers make too much 

money by raiding 401(k) plans; and fees are not understood because information is not disclosed. 

Although time will not allow me to go into detail, I would like 

to note that, prior to 2008, the industry’s average pre-tax profit 

margin was approximately 21 percent. It is expected to be 10 percent for 2008, and in negative territory for 2009. In the last 5 

years, approximately 80 vendors have exited the business. Additionally, the vast majority of service providers provide substantial, 

detailed and understandable information about fees, above and beyond what current law requires, because doing so makes good business sense. 

Service providers are already regulated by multiple agencies, including the IRS, DOL, SEC, OCC, FINRA and state insurance and 

securities regulators. Multiple disclosure standards make compliance expensive. We support a coordinated approach to fee disclosure. 

The proposal requires service providers to make detailed disclosure about fees in predetermined categories. We urge the committee to reconsider whether requiring disclosure to a one-size-fitsall solution is appropriate. Not all fees fit into categories. And no 

single form can adequately address the diversity of products and 

service structures, without favoring one segment of the industry 

over others. 

A statutory framework must be flexible for the vast array of investment products and service structures, and be able to accommodate the ever-changing retirement and investment industries. 

Much has been made about the debate over bundled versus 

unbundled fee disclosure. Unbundled providers argue that their 

services may seem more expensive, when compared to services offered by bundled providers. Bundled providers argue that they may 

not offer component services on an unbundled basis, do not have 

unbundled pricing information available, and unbundled pricing information can be arbitrary and potentially misleading. 

We view this debate as a distraction from the real issue: The 

need for useful fee disclosure to plan sponsors, so they can make 

sound fiduciary decisions. Plan sponsors will have preferences towards bundled or unbundled providers, and can ask for unbundled 

pricing information. 

Similarly, providers should be able to structure and price their 

products on an unbundled or on a bundled basis, as they choose. 

When a bundled provider is asked for unbundled pricing informa-
44 

tion, it may choose to comply in order to retain existing, or win 

new business. Market forces, industry best practices and the threat 

of litigation and regulatory enforcement should drive behavior. 

Ultimately, the bundled-versus-unbundled debate is more about 

providers with different product and pricing structures arguing 

about business competition, rather than an alleged defect in fee 

disclosure. New laws should not attempt to resolve this business 

debate. 

Plan service providers are ready to assist plan sponsors to provide plan-fee information to participants. We support a flexible concept-based legislative framework. However, the proposal mandates 

an omnibus notice and chart that many participants may find will 

not provide more useful or understandable information. 

Categorizing fees by the way they are charged, which may have 

nothing to do with what they are for, may not increase participants’ understanding. Participants should be provided with total 

investment-fee information such as expense ratios. Many participants may not find the additional underlying details to be useful 

in making better decisions. 

We are concerned that the proposal requires participants’ statements to include dollar-basis disclosures of fees that are embedded 

in investment products, such as most investment-management fees. 

While rate disclosure is possible, the information that would be 

needed for dollar disclosures on statements is simply not available 

on the plan record-keeping systems. 

We are concerned that the index-fund requirement as the condition for 404(c) fiduciary protection is effectively a mandate, which 

is unprecedented under ERISA. We are also concerned about the 

subjective nature of the requirement, because reasonable investment experts are likely to disagree on what funds will satisfy the 

requirement. And we have all been painfully reminded: Past performance is no guarantee of future results. 

We are concerned that this subjective requirement will expose 

plan sponsors to increase litigation risk, and that mandating the 

use of index fund as a way to reduce plan costs relies on a misconception that it will change the economics of plan-administration 

fees. 

I thank you for the opportunity to express my—— 

[The statement of Mr. Goldbrum follows:] 

Prepared Statement of Larry H. Goldbrum, Esq., General Counsel, the 

SPARK Institute 

Chairman Andrews, Ranking Member Kline, honorable members of the Committee, my name is Larry Goldbrum and I am General Counsel of The SPARK Institute, an industry association that represents the interests of a broad based cross 

section of retirement plan service providers, including record keepers and investment managers who will be affected by the proposed 401(k) Fair Disclosure for Retirement Security Act of 2009 (the ‘‘Bill’’). Our members include most of the largest 

service providers in the retirement plan industry and collectively they service more 

than 62 million defined contribution plan participants. It is an honor for me to share 

our organization’s views on the proposed legislation. I welcome the opportunity to 

respond to your questions after my opening statement. 

Introduction 

The SPARK Institute supports and encourages fee transparency that helps plan 

sponsors and participants understand the fees and expenses that they pay for plan 

and investment services, and make decisions on a fully informed basis. We commend the Committee for its efforts in this area. Our goal today and hopefully in 
45 

future collaborative efforts is to ensure that the approach taken in any legislation 

has a meaningful impact on plan participants and sponsors ability to understand 

401(k) fees and does not unintentionally drive those fees up. 

The SPARK Institute believes that America’s employer-sponsored retirement plan 

system is a fundamentally proven, sound, competitive and innovative system that: • Provides the best way for American workers to save and invest to reach their 

retirement goals, and • Provides valuable services and good value for the cost. 

Fee disclosure should be a part of an overall assessment made by plan sponsors 

and participants about the value they receive for the cost. In addition to fees, plan 

sponsors and participants must evaluate investment performance and the quality 

and utility of the services provided. Ultimately, the best approach to fee disclosure 

will be one that is flexible, concept-based and allows service providers and plan 

sponsors to tailor disclosures with comparable information for each plan investment 

option. This measured approach will avoid overwhelming participants with extensive detail and will help them understand the fees they are paying and the services 

they are receiving in return. If we are not careful, however, requirements intended 

to help participants could instead increase costs and create potential fertile ground 

for lawsuits against plan sponsors without helping participants make informed 

choices. 

Many misperceptions and misunderstandings have emerged in the discussions 

about plan fees and their disclosure. I would like to try to correct some of those 

misperceptions today. In addition, while we have not had sufficient time in advance 

of this hearing to review the specifics of the proposed legislation, we would like to 

address certain provisions that we anticipated may be included. 

Misperceptions About the Retirement Plan Industry 

The SPARK Institute recently completed a series of white papers entitled ‘‘The 

Case for EmployerSponsored Retirement Plans’’ analyzing certain aspects of the retirement plan industry including ‘‘Fees and Expenses’’, ‘‘Benefits and Accomplishments’’ and ‘‘Coverage, Participation and Retirement Security.’’ These reports identify some important facts and dispel many myths about employersponsored retirement plans, particularly 401(k) plans. 

Some common misconceptions are that 401(k) plans are not a ‘‘good value’’ for 

workers trying to save for retirement, and that the fees for plan and investment 

services do little more than erode workers’ retirement savings. These criticism do 

not take into account all of the services that are provided to the plan sponsor and 

participants, including investment management. In fact, the data shows that plan 

participants receive more services and support and have more flexibility when investing through their 401(k) plans than they would if saving through retail IRAs. 

In addition, 401(k) plan participants may also benefit from sponsor-paid services, 

matching and profit-sharing contributions, and group pricing. And finally, recent 

studies show that on average, expenses for 401(k) participants are lower than the 

expenses paid by retail mutual fund investors. 

There is also a misperception that service providers make too much money at the 

expense of American workers. Providing 401(k) plan services is capital and labor intensive and involves substantial start-up and maintenance expenses, especially in 

light of the ever-changing employee benefit legislative and regulatory environment. 

In fact, cost pressures are significant because competition is fierce. The industry has 

been consolidating over the past ten years as many providers were unable to maintain profitability. SPARK Institute data indicates that more than 60 companies have 

sold their businesses in the past five years, and more than 20 additional firms 

exited the record keeping side of the business during that period by outsourcing that 

function to third party service providers. The industry’s pre-tax profit margin averaged 21% from 2005 through 2007, a period when the Dow Jones Industrial average 

was between approximately 10,800 and 13,400. However, the 2008 average pre-tax 

profit margin is estimated to be approximately 10%, and in negative territory for 

2009, because of the market collapse. Another myth is that plan sponsors and workers do not understand the fees and expenses associated with their retirement plans 

because the information is not being adequately disclosed, or is not available. The 

vast majority of retirement plan and investment providers provide substantial, detailed and understandable information about plan fees and expenses to plan sponsors and participants above and beyond what is already required by law because 

they recognize that it makes good business sense to do so. It also helps them avoid 

potential misunderstandings and claims from plan sponsors, plan participants and 

regulators. In fact, a strong case can be made that it is a combination of simple 

human nature and the ‘‘do it for me’’ preferences of a significant number of American workers when it comes to retirement saving and investing—rather than the 
46 

lack of information—that is at the root of any lack of understanding. As these issues 

are considered, it is crucial that we all understand that plan sponsors and participants already receive and have access to a lot of information about plan fees, and 

that additional disclosures must be more useful, not just more information. 

Discussion of Specific Proposals 

Before I begin my comments about the specifics of the proposed Bill, I want to 

note that retirement plan and investment providers are already regulated by various agencies including the IRS, DOL, SEC, OCC, FINRA, and state insurance and 

securities regulators. Having multiple disclosure standards makes compliance very 

expensive and adds to the fees paid by plans and participants. The SPARK Institute 

supports a coordinated approach to regulating fee disclosure for retirement plans. 

The proposed Bill requires that all service providers make detailed disclosures 

about plan fees and expenses in four categories. The SPARK Institute strongly 

urges the Committee to reconsider whether requiring disclosure to be made through 

a ‘‘one size fits all’’ solution using pre-determined categories is appropriate. Not all 

fees fit neatly into categories and no single form or methodology can adequately address the diversity of products and service structures without favoring one segment 

of the industry over others. Any statutory framework must be flexible and adaptable 

to the broad array of investment products and service structures, and must be able 

to accommodate the competitive and ever changing nature of the retirement plan 

and investment industries. 

A. Disclosure to Plan Sponsors 

With regard to disclosures to plan sponsors, service providers should not be required to calculate the actual dollar amount of fees and expenses, particularly those 

that are embedded in the expense ratios of plan investment options. Providing expense ratio or rate information, instead of dollar estimates, will provide enough information. Service providers can, upon request, provide simple estimates of the aggregate amounts of such fees and expenses based on certain assumptions and average account data. Much has been made of the debate over disclosure of fees in ‘‘bundled’’ vs. ‘‘unbundled’’ service structures. Unbundled providers argue that their 

products and services may appear to be more expensive to plan sponsors when compared to the same or comparable services that are offered through a bundled service 

provider. Bundled service providers argue that they may not offer component services on an unbundled basis, and do not have unbundled pricing or cost information 

available. Bundled providers add that any such unbundled pricing information is inherently arbitrary, hypothetical, unreliable, and potentially misleading. The SPARK 

Institute views this debate as a distraction from the real issue—the need to provide 

useful and relevant disclosures to enable plan sponsors to make sound fiduciary decisions. Plan sponsors will have their own preferences toward either bundled or 

unbundled product offerings, and have the ability and right to request information 

that they deem necessary in order to evaluate service providers. Similarly, service 

providers should have the ability to structure their products and services on an 

unbundled or bundled basis and price their products and services as they choose. 

Plan sponsors have the ability to request information from service providers and 

service providers have the option to comply with such requests in the hopes of winning new or retaining existing business. Market forces, industry best practices, the 

threat of litigation, and the threat of regulatory enforcement actions should drive 

industry behavior instead of legislative mandates. The SPARK Institute believes 

that ultimately the bundled versus unbundled disclosure debate is more about companies with different product structures, service models, product and service capabilities, and pricing structures debating about market forces and competition than 

alleged defects in disclosure of employer-sponsored retirement plan fees. The 

SPARK Institute does not believe that new laws and regulations should attempt to 

resolve this business debate. 

B. Disclosure to Plan Participants 

SPARK Institute members stand ready to assist plan sponsors in providing fee information to plan participants. As with service provider disclosure to plan sponsors, 

The SPARK Institute urges the Committee to seek a flexible and concept based 

framework, as workers will ultimately bear the costs of additional disclosures. 

Instead of creating such a framework, the Bill anticipates an omnibus notice and 

fee chart addressing all the plan’s investment options. The Bill’s requirement that 

the fee chart categorize charges relating to plan investment options has the unintended effect of increasing burdens and costs without providing new or more useful 

data to participants. Categorizing fees by the way they are charged, which may have 

nothing to do with what they are for, will not help participants better understand 

them. With respect to a plan’s investment options, participants should instead be 
47 

provided with information regarding the total investment fees (e.g., the expense 

ratio) and the transaction related fees (e.g., redemption fees). Providing participants 

with extra detail about how fees are broken down will likely confuse or overwhelm 

them instead of enlightening them. 

The Bill also obligates the plan sponsor to provide dollar basis disclosures or estimates of indirect charges, such as fees that are embedded in investment products, 

for each participant on quarterly benefits statements. These charges, by definition, 

are embedded in the funds and the information needed for the calculations and estimates does not exist on the record keeping systems that produce the statements. 

Moreover, since the fund and account information is reported net of the embedded 

fees, adding this information to the statements will result in information that does 

not add up or make sense. 

C. Other Requirements 

It is our understanding that the proposal also includes a requirement that conditions ERISA 404(c) fiduciary liability protection on the inclusion of an index fund 

that meets certain subjective requirements. In our opinion, this precondition is effectively the same as a mandate, which is unprecedented under ERISA. The Bill’s objective—increased transparency—does not warrant a specific fund requirement. We 

are also very concerned about the subjective nature of the fund description which 

requires the use of ‘‘an appropriate broad-based securities market index fund and 

which offers a combination of historical returns, risk and fees that is likely to meet 

the retirement income needs at adequate levels of contribution.’’ Reasonable investment experts are likely to disagree on which funds satisfy such requirements. Additionally, as we have all been painfully reminded in recent months, past performance 

is no guarantee of future results. The subjective nature of the requirement makes 

it untenable and exposes plan sponsors to unnecessarily increased litigation risk. 

And finally, mandating the use of index funds as a potential ‘‘low cost’’ investment 

option as a way of reducing plan costs relies on the misconception that doing so will 

change the economics of servicing a plan. Regardless of which funds are used in a 

plan, plan service providers must have a source of revenue for the total package of 

services they provide. 

Conclusion 

On behalf of The SPARK Institute, I thank the panel for the opportunity to share 

our views on these important issues, and I welcome your questions. 

[Additional submissions of Mr. Goldbrum follow:] 

[‘‘The Case for Employer Sponsored Retirement Plans: Benefits 

and Accomplishments,’’ may be accessed at the following Internet 

address:] 

http://www.sparkinstitute.org/content-files/File/Benefits%20and%20Accomplishments%20FINAL%20April09%281%29.pdf 

[‘‘The Case for Employer Sponsored Retirement Plans: Coverage, 

Participation and Retirement Security,’’ may be accessed at the following Internet address:] 

http://www.sparkinstitute.org/content-files/File/ 

Coverage%20Participation%20and%20Security%20FINAL%205-4-09.pdf 

[‘‘The Case for Employer Sponsored Retirement Plans: Fees and 

Expenses,’’ may be accessed at the following Internet address:] 
48 

http://www.sparkinstitute.org/content-files/File/Fees%20and%20Expenses%20May%202009%20FINAL.pdf 
49 
50 
51 
52 
53 
54 
55 
56 

Chairman ANDREWS. Well, thank you, Mr. Goldbrum. We are 

happy to have you with us. 

And I would like to thank each of the witnesses for excellent contributions to the committee’s understanding of the issues. 

We are going to begin with questioning—with Chairman Miller— 

for 5 minutes. 

Mr. MILLER. Thank you very much. 

And thank you for your testimony. 

This hearing and, I believe, this subject matter, is absolutely critical. And I think your testimony validates that point of view. 

The financial-services industry likes to remind us that American 

households own a piece of the market; that more people own stock 
57 

today than at any other time. The vast majority of them own less 

than $10,000 worth of stock, and they own it primarily through 

their 401(k) plans or a related plan. 

That nexus to the stock market is a great deal with the stock 

market is going up. Nobody on this committee is suggesting that, 

somehow, this money was lost because, solely, of these fees. But 

what it pointed out is that, in a volatile market, with unprecedented events taking place—that you need to be able to hold on to 

every dollar possible. 

And when we see how fees can erode the savings of individuals, 

I think it is very important that we see that we can secure for 

them every dollar possible, since they are working very hard, after 

paying all of their bills, to set aside money to save for their retirement. 

And if you talk to individuals, you will see—in one market drop 

that was engineered by financial scandals, we see that people could 

lose their health savings account, their kids’ education, and their 

retirement—all in one drop from the market. 

And so the question of, ‘‘What are they left with?’’ and ‘‘What is 

the net that is provided to them after they make these investments?’’ is very, very important. 

I know we can all talk about how complicated it is, and, ‘‘They 

won’t need it,’’ and, ‘‘They won’t like it,’’ and, ‘‘They won’t understand it.’’ But the fact of the matter is the effort hasn’t been made 

to give it to them today, so we don’t know that. 

And if I go to Mr. Bullard—if I understand what you are saying 

on pages 14, 15, and, I believe, 16, in your opening statement—is 

this information is available. It is just not in a place where it is 

very useable to the individual, or maybe even the plan sponsor, in 

this case, because of the manner in which it is scattered about in 

the various reports that are required today, under the law? 

Mr. BULLARD. Right. That is correct. And it is a very important 

point. 

Most of the table has been focusing on the bundled-unbundled 

issue. But there is a—a prior issue of just being able to give participants a number so they can know what their total, all-in costs are, 

and, I would hope, also provide that as a dollar amount so, as the 

ranking member pointed out, they can evaluate that $300 for themselves, and decide whether that is something worth paying. 

Mr. MILLER. And you believe that that is information that they 

can absorb, and make a decision based upon? 

Mr. BULLARD. Ideally, what you would do is you would have an 

all-in expense ratio. And, then, to amend the bill’s comparative-fee 

components—to provide that, next to that, there be a representative fee for that size 401(k) plan. By putting the fee in context, then 

you are really allowing basic capitalist principles of competition to 

work in this marketplace, and let them evaluate whether it is 

worth paying more, if that is the case, than the average fee. 

The ICI just released a study which shows that it seems to be 

comfortable with there being representative fee amounts out there 

that it characterizes as ‘‘average’’ for different size plans. I see no 

reason why that shouldn’t be placed alongside that very simple one 

expense ratio that are provided to participants. 

Mr. MILLER. Thank you very much. 
58 

Ms. Mitchem, you raised a point that has been raised somewhat 

in this committee, but a little bit more on the Senate side. And on 

page seven, when you discuss organizing funds around risk levels, 

as opposed to sort of consumer names, with the life cycle, safe and 

secure—what is the other one they were looking—had another one 

in the Senate that they had a problem with—target funds? What 

we find out is, when they looked at these funds that are advertised 

under the same consumer heading, they are, in fact, very different 

in terms of risk. 

And there is very—apparently—somewhat difficulty in consumers determining how that risk is managed. Do you want to 

speak to that? 

Your mic, please? 

Ms. Mitchem, if you could turn your microphone on—thank you. 

Ms. MITCHEM. I think it is important to recognize the challenges 

that participants face in really becoming their own chief investment officers. Most of them don’t have a background in finance, 

and have an extraordinarily difficult time deciding how to allocate 

their funds in the most appropriate manner. 

So I think what we have to do is to make it easy for them; to 

make investing in their 401(k) plan not a difficult challenge. And 

one of the ways that we can do that is by demystifying the vocabulary. 

So, instead of talking, you know, about small-cap equity and 

large-cap equity and high-yield bonds, we could actually put these 

funds on a risk spectrum between ‘‘conservative,’’ ‘‘moderate,’’ and 

‘‘aggressive.’’ And those are words that the average participant 

can—— 

Mr. MILLER. But you have to admit, you started out by saying 

that the whole marketing ploy here is that, somehow, you can beat 

the Street. So if you don’t use the language of the Street, how could 

you possibly beat the Street? 

So if you don’t understand large-caps, small-caps and all the rest 

of that—I mean, it is a fallacy of the plan. 85 percent of the trained 

traders on the Street can’t beat the Street. So—but we are convincing Americans that they can. 

But I think you—I have a limited time—you—I am about out of 

my time. I am out of my time. But I am chairman of the committee, so I am going to take another minute. 

I think this is a very important point that you are raising, about 

how these—again, this is marketed to individuals. 

But I want to, quickly, go to Ms. Borland. 

One of the concerns I also have is what happens when people 

exit these plans—a lot of discussion here about getting them in and 

automatic enrollment, and all the rest of that. What happens when 

they exit? 

We went through a huge scandal here with lenders in the student-loan program, who used that program to develop a market for 

people for private—‘‘private’’—student loans. They were just simply 

credit cards. 

And the arrangements that they—you know, people started putting their trust in those individuals, and then they got marketed 

off into very high-interest loans. 
59 

You are suggesting here that there is a financial advantage in 

some of the affinity arrangements between these funds and their 

other products. 

You want to take 30 seconds? And I will get back to you ‘‘off the 

air,’’ as they say. 

Ms. BORLAND. Okay. Yes, it is something that is very important. 

When individual investors within a 401(k) plan have the purchasing power of 1,000 or 10,000 or 20,000 investors, they can expect lower fees. When they roll over into that retail environment, 

they have the purchasing power of one individual. 

We are not suggesting that rollovers are a bad thing. And, in 

many cases, they may be a very smart decision; certainly, significantly better than cashing out. 

However, there could be a significant fee differential. And there 

is no requirement that those be effectively disclosed. So when a 

service provider for a 401(k) plan has incentives to encourage rollovers into retail products, we think the plan sponsor needs to be 

adequately aware of that potential conflict of interest, and be 

aware of the marketing that may be taking place by the service 

provider, directly to plan participants, and ensure the appropriate 

disclosure is in place. 

Mr. MILLER. Thank you. 

Thank you, Mr. Chairman. 

Chairman ANDREWS. Thank you, Mr. Chairman. 

The gentleman from Minnesota, Mr. Kline, is recognized. 

Mr. KLINE. Thank you, Mr. Chairman. 

We have had a number of off-line, sidebar discussions, here, 

about the importance of lawyers and the legal profession. 

We differ, often, on the importance of that. But I think it is important that, when we are looking at legislation—that the principal 

purpose not be just to grow the legal profession; to make things 

complicated; to write legislation in such a way that you are bringing about more causes of action, more lawsuits. And I suppose, as 

I mentioned before, in some districts, we can expand law schools. 

But that shouldn’t be what our principal purpose is. 

So, Mr. Chambers, I want to turn to you. You, in your testimony, 

had a great deal to say about fiduciary-liability issues. And, as you 

know, when we took this bill up in the last Congress, I offered an 

amendment that, in effect, said, ‘‘If a plan sponsor did what the bill 

says it was supposed to do, it would be shielded from a lawsuit.’’ 

It turns out I withdrew the amendment on the understanding 

that, as the legislation went forward, we would continue to discuss 

that. The legislation didn’t go forward. And so we didn’t proceed 

with that. 

Can you just take some of my time here, or—now, I am making 

it your time to tell us what sort of protection needs to be included 

in this bill? And how can we go about making sure that that is 

taken care of? 

Mr. CHAMBERS. Thank you. 

Mr. KLINE. And I understand I am asking lawyers, so there is 

some risk here. But—— 

Mr. CHAMBERS. Well, I was going to point out that lawyers have 

401(k) plans, too. So there has to be something to go into that. 

I am sorry? 
60 

Chairman ANDREWS. We have nothing in them. 

Mr. CHAMBERS. Absolutely. 

As I said, the American Benefits Council and, I think, most employer organizations, are fully in favor of increasing the transparency of plan fees, and of the operation of plans. There is no 

question about that. 

The concern here is that as additional responsibilities are being 

placed on employers to collect information, and then disseminate 

information, we are concerned that that itself is going to increase 

their potential for liability. 

So one of the things that we have suggested, as I mentioned, 

both in the written testimony, and in my oral testimony, is that in 

several different situations, we think that it is appropriate to provide those employers who act in good faith and—whether there are 

small mistakes in terms of, you know, 27 basis points being 

charged, as opposed to 32, or whether they are given information 

that, ultimately, is incorrect, by a service provider—that the legislation should provide those employers with coverage—in other 

words, with limited or no liability. 

Mr. KLINE. And that would—excuse me, if I can. You have seen 

the legislation, at least as it was last time. And you are suggesting 

that we do need to put language into it—we do need to amend Mr. 

Miller’s bill to make sure that there is that protection. 

Mr. CHAMBERS. That is correct. 

Mr. KLINE. Okay. 

You also talked about strike suits. Tell us a little bit more about 

what those are—defining the term. What is their purpose, and how 

do we need to address that in the legislation? 

Mr. CHAMBERS. Well, I don’t know that the term ‘‘strike suit’’ is 

something that you are going to find in Webster’s Dictionary, 

but—— 

Mr. KLINE. We will take your definition. 

Mr. CHAMBERS. Oh, thank you. 

Actually, it is the definition of some of the litigators at our firm, 

because I asked them if there is a more appropriate term, and they 

said, ‘‘No.’’ 

A strike suit is a suit which is difficult to describe in saying, 

‘‘Well, this was clearly a strike suit, as opposed to that one,’’ because it is a matter of intention. 

A strike suit is—— 

Mr. KLINE. What is the purpose of a strike suit? 

Mr. CHAMBERS. Well, the purpose is, essentially, to try to get a 

settlement in connection with a cause of action. And the way that 

a lot of class actions and other suits that are brought in connection 

with employee benefit plans are operated is that, you know, a complaint is filed, and then there is a motion to dismiss by the defendants. 

And a lot of defendants—typically, employers and service providers—recognize that if a class gets passed in motion to dismiss 

part of the program, then, in fact, there is going to be a lot of additional expense. 

And so these are cases in which the theory is, if we can get 

past—if the plaintiffs can get past the motion to dismiss, at that 

point in time, there is a very good opportunity for settlement, with-
61 

out actually having to take the case to its regular conclusion, 

through the court system. 

And, of course, those are cases, as I mentioned in my oral testimony, which lead to, again, feathering not only plaintiff’s lawyers— 

I mean, you know the—— 

Mr. KLINE. Both sides get paid. 

Mr. CHAMBERS. Both sides are represented. 

And—— 

Mr. KLINE. Twice as many law schools. 

Mr. CHAMBERS. And an awful lot of the money goes into lawyers’ 

pockets, and that is unfortunate, because—and it has an adverse 

impact on the amount of contributions made to the plan, services, 

et cetera. 

Mr. KLINE. All right. Thank you. I see my time has expired. 

I yield back. 

Chairman ANDREWS. I thank my friend. 

I thank the witnesses for very edifying testimony. And I want to 

kind of walk through some of the concerns that we have heard 

about the underlying bill. 

One objection, or issue, raised by the minority side, was that 

maybe this isn’t that big of a deal. Well, small amounts of money, 

compounded over time are a very big deal. And if someone is overpaying for fees over a 30-, 40-, 50-year period in their life, it metastasizes. It becomes a lot of money. 

The second concern—Mr. Chambers, I think we have the same 

goal. The purpose of this bill and the investment-advice bill is not 

to expand employer liability. It is to expand protection for consumers and investors and retirees. So we are interested in hearing 

from you on a continued basis, of how the bill might be improved, 

in conjunction with the minority, on these issues. I think you have 

raised some significant questions this morning. 

Mr. CHAMBERS. Thank you. 

Chairman ANDREWS. I heard some concerns—and I am paraphrasing—but that bundling is too much of a problem for providers. 

Ms. Mitchem, Barclays is a pretty large provider, isn’t it? 

Ms. MITCHEM. Yes. 

Chairman ANDREWS. Do you have any difficulty unbundling any 

fees that you would charge to a client? 

Ms. MITCHEM. Well, I think, importantly, we are not a recordkeeper. So we are an asset manager only. So we don’t provide what 

would be called the tradition bundle, where we bundle administrative fees with investment-management fees. 

Chairman ANDREWS. Right. 

Ms. MITCHEM. But I would say that if you look across the 401(k) 

industry, there are very few providers that offer only a completely 

bundled package. So what you will find is that in the ‘‘bundled’’ 

category, the majority of those players are what you might consider 

‘‘partially bundled.’’ So they offer a couple of outside options, but 

the majority of it is a proprietary—— 

Chairman ANDREWS. Would you agree or disagree with the statement that the unbundling requirements in the bill are punitive or 

too burdensome for a provider? 
62 

Ms. MITCHEM. You know, I don’t think they are punitive, because 

I think, when you ask a question, and you dig deep, I think plan 

sponsors do get the answer. And I think that, obviously, the work 

of Hewitt would support that. So we find that when plan sponsors 

go out for bid, when they actually press the provider to get that 

information, they both get that information and end up, in many 

cases, lowering the overall fees of the plan. 

Chairman ANDREWS. The Adam Smith idea, as Mr. Bullard 

talked about—more competition—it tends to work. 

Ms. MITCHEM. Also, just making it easier for plan sponsors to get 

that information. I mean, they shouldn’t have to perform a forensic 

exam to get the information that they need to make the most appropriate fiduciary decision. 

Chairman ANDREWS. Mr. Onorato, another criticism that we 

have heard is that the information that would be presented under 

this bill is too complicated for either employers, or employees, or 

both to understand. Do you agree with that concern? 

Mr. ONORATO. Mr. Chairman, absolutely not. 

The independent providers have been disclosing plan fees and 

participant fees for the last 20 years. It may not be in the template 

recommended by the bill, but we exist because we can provide 

cheaper service, and better availability of investment direction, and 

we disclose our fees. 

It is absolutely not true to suggest that a small 15-employee company would have the leverage to go into a bundled investment firm 

and ask for full disclosure of record-keeping fees. 

The testimony given was, ‘‘This is provided when client retention 

is an issue.’’ 

The plumbing contractor at Ford Trucks cannot go in to a big, 

bundled provider and say, ‘‘I would like to know what I am paying 

for the call center or the ad men and the plan setup.’’ 

Chairman ANDREWS. Right. 

Mr. ONORATO. Not going to happen. 

Chairman ANDREWS. Mr. Goldbrum, and I will just conclude with 

you, because my time is about to expire. You graciously put the 

light on several minutes after I began, but I am not going to—I will 

play by the rules everyone else does. 

No, that is right. Well, my dear friends would not let that happen. 

Mr. Goldbrum, if a employee—if that plumbing contractor—Joe 

the Plumber, let us call him—goes to his or her financial-services 

firm that has set up the 401(k) and says, ‘‘Why are you guys taking 

a point and a half a year out of people’s accounts, and what is it 

for?’’—do you think he has the right to know the answer to that 

question? 

Mr. GOLDBRUM. Yes, I do think that—— 

Chairman ANDREWS. Do you think that we have to provide it by 

statute, or do you think the market is providing him with an answer now? 

Mr. GOLDBRUM. Well, I think that the vast majority of service 

providers are already providing a significant amount of information 

to employers to help them evaluate the fees that are being paid for 

their plans, and to help them satisfy their fiduciary requirements. 
63 

So where you have a provider that is providing a full suite of 

services, and the fees are being paid, for example, through the investment fund, the simple answer is that the fees are the total expense ratios of the fund. What are the total costs of the funds? 

Chairman ANDREWS. You are aware, though, of the market research of—both among small employers and employees that say 

most people have no idea what these fees are being paid for. Why 

is that? 

Mr. GOLDBRUM. Well, I think that it is important to separate 

what employers, as plan fiduciaries, need to know, and the decision 

process that they go through in picking the funds and setting up 

the plan—versus what the participants need to know in making 

their investment decisions. 

Chairman ANDREWS. Shouldn’t participants have the right to 

know whatever they want to know, because it is their money? 

Mr. GOLDBRUM. Again, the vast majority of service providers are 

providing substantial information—— 

Chairman ANDREWS. But, no; that wasn’t my question. If Joe is 

an employee of the fund, as well as the owner, shouldn’t he have 

the right to know where every dollar of his pension money is going? 

Mr. GOLDBRUM. Absolutely. 

Chairman ANDREWS. Okay. 

Mr. GOLDBRUM. We are not against fee disclosure. Our issues are 

really in the manner and the approach—— 

Chairman ANDREWS. Okay. 

Mr. GOLDBRUM [continuing]. And the specific details of how—approached. 

Chairman ANDREWS. I appreciate that. Thank you very much. 

Mr. McKeon is not here, so it would be Dr. Roe? 

Dr. ROE. Thanks, Chairman Andrews. 

First of all, obviously, Vanderbilt is very well represented here 

today. And I am pleased to say, 2 weeks from Friday, my son gets 

his MBA from Vanderbilt. So I am—halleluiah. That is the last 

one, I think. 

Ms. BORLAND. Congratulations. 

Chairman ANDREWS. Yes, but how is their football team? 

Dr. ROE. Well, not bad. Not bad. 

Chairman ANDREWS. He didn’t go to law school? 

Dr. ROE. No. No, he did not go to law school. 

Chairman ANDREWS. Okay. All right. 

Dr. ROE. I appreciate you all being here, and trying to work 

through this. In the medical group I practiced in, we had 70 providers and about 350 employees. And I had the fortune, in good 

years, to be on the pension committee, and, this last year, the misfortune of being on the pension committee when prices—I mean, 

the assets were going down. 

And I think fee transparency is extremely important. It is very 

hard, sometimes, even in my position on the pension committee, to 

figure out how much money we will pay in to have the plan administered. 

However, in my own personal account, I will use a bundled approach many times. I do, currently, because I think you have 

aligned incentives. I could look at my account and say, ‘‘I made or 
64 

lost this much.’’ I can certainly compare that to the market, and 

make a decision. 

I know exactly how much I am paying each year. And I think— 

I forgot who gave the example—if it goes from $1 million to $2 million—okay—that you paid more money. That is correct. But if that 

beats the market average, I have no problem with paying for that 

advice. 

And if it is good advice, and my return, net of fees, is higher than 

the market average, I am happy with that. I don’t mind paying for 

that at all. 

And I will stop, and then get your comment on that. I had forgotten you had made that statement. 

Mr. ONORATO. Thank you. That is a very good point, Congressman. 

It comes down to freedom of choice. You choose not to be interested in more than the all-in fee. That is what you have said. If 

you are a firm that wrote software for call centers, or provided callcenter services, or you were a CPA firm, you would be fully qualified to produce your own 5500 and file it. Or you may elect to 

choose to support the call centers of your participants. 

Those firms need the choice. They need to sit down with the bundled provider and say, ‘‘I want to know, out of that 125 bits, how 

much that administrative unit charge is, because I might be able 

to do it cheaper.’’ 

We exist because, over time, we have proven we can do it cheaper by disclosing fees. Fees generate innovation. It generates better 

service for the ultimate participant. It comes down to freedom of 

choice. 

Dr. ROE. Okay. Thank you. 

I know that we spend a lot of time and money on, certainly, complying with ERISA. And I would just like a comment from any of 

the panel—do you think this will add any costs by doing this? Will 

this make this harder to comply with, or less hard to comply with? 

Mr. ONORATO. Are you asking me again? 

Dr. ROE. Just anyone on the panel. 

Mr. GOLDBRUM. Yes, I would like to make a comment about that. 

I think that you run the risk that if you don’t take a measured approach, and you simply provide a lot of additional information and 

more detail, simply for the sake of providing that information, it 

will, ultimately, increase the cost. And those costs will, ultimately, 

be passed on to the participants. 

So I think you need to do a cost-benefit analysis here, in terms 

of what information is truly targeted and truly beneficial, and will 

help participants make more informed decisions, and what will it 

cost to provide that information, and weigh that. 

And that is, ultimately, where we have concerns with the proposal, not in making fees transparent. We do support that; but 

more specifically, the approach that it is taken in how those fees 

are mandated to be disclosed. 

Dr. ROE. Well, then go ahead and—with Chairman Andrews— 

just to have his question a minute ago—certainly, at the end of a 

year, when you look at your report, or a quarterly report, it would 

be simple for the people in my office, for instance, to just look and 

say, ‘‘I paid $400 this year to have my plan administered, and I 
65 

made such and such percentage of gain.’’ I think that is what his 

point was. 

And that is really easy to look at. It is difficult to look at—I 

mean, I have got through organic chemistry. And figuring some of 

these fees out is difficult to do. And so I think just having it transparent is important. Any comments from that? 

Mr. GOLDBRUM. Yes, again, we agree that transparency is important. Again, it is the manner in which you go about doing it. So 

part of what we say is that participants should be given the right 

information. They should be able to have the total cost of what it 

is to use a particular investment option, so that they can make 

those comparisons. 

And, absolutely, that information is available, and can be provided. And the vast majority of service providers and plan sponsors 

already provide that information through fund fact sheets, through 

the Internet, through call centers. The participants can get that information. 

And granted, a fund summary would be better. And the vast majority of service providers, as I said, recognize that, and do provide 

that. 

Dr. ROE. Thank you, Mr. Chairman. 

Mr. BULLARD. Could I add something to that? 

Chairman ANDREWS. Sure. I just want to make one point, and 

then we will let that happen. 

I appreciate the doctor’s line of questions. I would invite you, Mr. 

Goldbrum, if you would—the committee would like to see your organization’s proposal as to what would work for fee disclosure. We 

would welcome you to submit that, so we could consider it. 

Mr. GOLDBRUM. I thank you for that opportunity. 

Chairman ANDREWS. Thank you. 

Mr. Bullard, did you want to—— 

Mr. BULLARD. I would just like to add just two points. One is 

that the purpose of disclosure should be to drive competition and 

force down fees that way. And I think it would—the more that you 

get that at the level of the participant, the more you will have that 

effect, because that is where you have got the market, and that is 

where you have got the competition going on. 

But I would also like the committee to keep in mind just the inevitable cost of 401(k)s, no matter what kind of legislation you 

adopt. And I was at a meeting of my child’s very small school in 

Oxford, on Monday, where we were presented with the costs for a 

startup plan. And even at very, very low costs, that was going to 

run about 2.3 percent for those teachers, who are not making much 

money in the first place. 

And if they expect to get a return of maybe 7 percent or 8 percent over their lifetime, essentially what they are coughing up to 

fees is a quarter of that. As an alternative, they could simply do 

a payroll deduction, go into a low-cost index fund at 0.18 percent, 

for example, and pay about less than one-tenth of the fees, and get, 

generally the same tax-deferred benefits you can get in the 401(k) 

plan. 

So we have a much broader question here, which is—— 

Chairman ANDREWS. Thank you. 

Mr. BULLARD [continuing]. Extremely costly 401(k) structure. 
66 

Chairman ANDREWS. Thank you very much for the questions, 

and also the answers. 

Mr. Hare is recognized for 5 minutes. 

Mr. HARE. Thank you, Mr. Chairman. 

Mr. Bullard, just a couple of questions for you. How do we reestablish, in your opinion, the integrity of our retirement structure? 

Can disclosures and the elimination of hidden fees do it alone, or— 

or—or what else do we need to do here? 

Mr. BULLARD. I could interpret that pretty broadly. And when 

you ask a professor a pretty broad question, you are certainly taking a risk. 

It kind of goes to the point I just made at one level, which is that 

we currently have a Social Security system that is not actuarially 

going to survive. And we have a private defined-contribution plan 

that continues to grow and, essentially, squeeze out Social Security 

as being anything other than, ultimately, a welfare program. 

So, in that light, if you look at that leg being in the private defined-contribution model, what we should be moving to is to eliminate the requirement that you have to do that through an employer 

altogether, and have one account where persons put their tax-deferred savings on their own, through payroll deduction. 

If you want to exercise control over what they do that, because 

of the tax benefit they are getting, you do it through that one 

standardized account. A huge amount of the costs that are associated with our defined-contribution system, be it 401(k), 403(B), or 

other, is that we have these tax filings. 

We have got the Form 5500. And it is all because it is done 

through an employer who is, really, a completely unnecessary 

intermediary. So the first step would be to have, let us say, lifetime 

savings accounts that not only are covering all of the tax-deferred 

options for which you can invest and not pay immediate taxes, but 

also see them as a vehicle through which, with payroll deduction, 

you could slash 401(k) fees to a tenth of what they currently are— 

not something the financial-services industry would like to hear, 

especially 401(k) providers. But that is, ultimately, where you 

would want to go if you wanted to save some real money. 

Within the 401(k) context, what I discussed before is really, I 

think, the major step that we need to take. Whether our fees are 

unbundled or not, we should be able to give market participants a 

number, and then a context within which to place it, so if they 

don’t like it, they can demand to get it reduced. 

Mr. HARE. Well, what options do plan participants have when 

they find out that they have been hit with these hidden fees? 

Mr. BULLARD. Well, one option is to go outside the 401(k) plan. 

And there are lots of 401(k) plans that, even with the tax deferral, 

they would be much better off not investing. Now, that is putting 

aside the match. 

Whenever there is an employer match, you are virtually always 

better off. But if you ignore the match, because of the current cost 

structure of a lot of these plans, you are better off not even investing in one, and going with either a tax-managed or a passively 

managed fund outside in an IRA or a Roth IRA. 

Mr. HARE. Thank you. 

This is for Ms. Borland and Mr. Onorato. 
67 

We heard last year, when we were taking up this bill, that several employers’ financial services argued that participants would— 

you know, I know Mr. Miller talked about this. The chairman 

talked about—‘‘too much information to plan participants.’’ And it 

could even stop participations. 

Based upon what you hear from the clients—you know, I know 

this may be repetitious, but I wanted to make sure I got this 

straight—is this really a concern? Or do you believe that the sponsors and the participants, A, want the information; and, B, how do 

you determine how much information the participants can absorb 

for the disclosure to be useful for them? 

Mr. ONORATO. Ms. Borland, be my guest. 

Ms. BORLAND. Okay. 

Based on conversations with clients, clients would appreciate 

guidance with respect to what works and what is effective. I think 

they sense that their employees do want more information. And 

they are looking for help, and the best ways to provide that information in a way that is understandable, and a way that works. 

It may have been you, Mr. Andrews, who said this earlier—we 

haven’t actually done this before in a consistent way. So, today, we 

don’t know exactly what is going to work, but we need to try something. 

We are in the process of doing some research to get some more 

ideas and guidance about what is most effective to employees. Once 

we have that, we would be absolutely pleased to share it. 

But more information is clearly needed. I think our clients are 

open to providing more information, but they are looking for help 

and clarity with respect to what that information needs to be. 

Mr. ONORATO. Congressman, I would add that I believe what has 

been proposed in this bill is just three buckets, is all we need to 

do. 

There has been a lot of commenting about, as the size of a plan 

goes down, the expense goes up. But it is always a mathematical 

formula associated with the assets in the plan. 70 percent of the 

2,000 plans a year that I acquire as a business manager are startup plans. They have 15 employees—20,000 people a year did not 

have a company-sponsored pension, may have no pension of any 

type. 

The charge for that startup plan—a Safe Harbor plan—in my 

company is $600 plan fee, and $36 per participant. We disclose it 

to the sponsor, and we disclose it to the participants. 

If we divide that by zero assets, it is a pretty high basis-point 

calculation. They contribute an average of $4,000 a year. One hundred thousand people with no pension plans started pension plans 

with my company in the last 5 years—$600, and $36 a participant. 

It is not expensive. 

Mr. HARE. Thank you, Mr. Chairman. 

Chairman ANDREWS. Thank you, Mr. Hare. 

The gentleman from Connecticut, Mr. Courtney is recognized. 

Mr. COURTNEY. I thank Mr. Chairman. And thank you for holding this hearing, which, I think Ms. Mitchem’s comment, and her 

testimony that people still are sticking with defined-contribution 

plans—that demonstrates why we have to get this right. 
68 

Because, for better or worse—and it has been worse lately, obviously—but, you know, we have got to have a system that people 

have confidence in, which, you now, some people have made allusions to the fact that we certainly can’t blame fees for the downturn in plan value. But on the other hand, if we are going to recover confidence in the system, which I think everyone understands 

is really, fundamentally, what we have to do with this economy, 

then we have to have a system that is credible, and that people believe in. 

Get to the question of cost, which Mr. Goldbrum raised—sort of 

a, you know, possible concern that what we are doing is actually 

going to raise costs. 

Ms. Borland, your testimony, which you had to summarize, actually did a nice job of showing specific examples of company X, Y 

and Z—of how better disclosure actually drives down costs. And, 

again, for the benefit of those who don’t have your testimony, you 

showed how companies could save millions, actually, because of the 

benefit of disclosure. 

And I guess what I want to be clear about is, in your opinion, 

does this bill sort of enable companies to really have tools to negotiate better prices? 

Ms. BORLAND. Absolutely. This bill enables the apples-to-apples 

consistent comparison across different types of arrangements, in 

order to make better decisions. 

Mr. COURTNEY. And, again, the companies that you cited as examples—to get to the point where they could negotiate intelligently 

with their providers—I mean they actually had to hire consultants, 

in some instances. 

Ms. BORLAND. They did. And that is one of the challenges. Right 

now, it is so hard to get there, you—large companies have the sort 

of buying power to push and force providers to provide that information. Absent that buying power, companies don’t have the ability 

to do that. 

And in addition, even the most sophisticated companies generally 

need outside help to figure out all of the information, to pull it together. 

It is not always the provider is giving it welcomingly. There is 

implied fees that have to be discovered within those structures to 

be—the bill would provide the consistency and the clarity needed, 

with respect to the information that should be disclosed. 

Mr. COURTNEY. So, for the small business that has got four or 

five employees, like my old law firm, a couple years ago, you know, 

rather than having to go out and incur the expense of a consultant—actually having it by operation of law, that these fees would 

be disclosed—then you would be able to decide whether or not, 

‘‘Hey, you know, I am not getting a good deal, here. It is time to 

shop around.’’ 

Ms. BORLAND. Exactly. It would facilitate better comparison. 

Mr. COURTNEY. There is another issue, which has been raised 

with prior questions—is the issue of exposure to litigation. And I 

am sure everyone believes that no one should be the target of frivolous litigation. 
69 

I guess the question I have, though—because I was sort of flipping through the bill again, just to sort of see whether or not this 

legislation somehow adds to exposure to employers. 

Mr. Bullard, I don’t know if you have any comment in terms of 

whether or not—again, just this statute, or this proposed legislation, by itself—somehow aggravates that problem or—because it 

seems like the obligations it is creating is on investment plans, not 

on employers. 

Am I reading it right or wrong? 

Mr. BULLARD. Yes, ultimately, it will go, to some extent, to the 

selection of the options. And any informational requirements will 

go to their responsibility to select options prudently. 

In litigation contexts, as was discussed, that is a question of 

whether you can get past a motion to dismiss. And the issue of the 

motion to dismiss is whether the Safe Harbor, under ERISA, is 

going to be available to the employer, with respect to the decision 

they made. 

About 6 months ago, it was fairly clear—at least I think—that 

the decision made by the employer would include these kinds of 

factors. The law is now in flux because a couple of appeals courts 

have suggested that once the employer has picked, essentially, reasonably allocated options—that there is no more fiduciary duty. 

I think that will eventually be reversed by the majority of courts. 

But that is going to be the issue. 

So, essentially, the legislation, as currently written, fits into the 

Safe Harbor structure. Where there is a liability issue is going to 

be the clarity with which the Department of Labor explains exactly 

what employers have to do within that Safe Harbor. And that is 

what causes the strike suits. 

It is the lack of clarity in the law. And it allows frivolous litigation to find its way in with justifiable litigation, because of the lack 

of clarity in the guidance. 

But, ultimately, you have to leave that to a more detail-oriented 

body. I think that, as the legislation is written, you have got your 

Safe Harbor. 

I, really, have no objection to Mr. Chambers’ lists of requests. I 

think none of those really raise any significant issues from a participant’s point of view. But, ultimately, on your question, it is 

going to be the Department of Labor’s guidance under that Safe 

Harbor that is going to drive how much frivolous litigation there 

is. 

Mr. COURTNEY. All right. Thank you, Mr. Chairman. 

Chairman ANDREWS. Thank you. 

I think, Mr. Chambers, you wanted to weigh in on that. Would 

you maybe like to do that? 

Mr. CHAMBERS. Well, I wanted to weigh in until Mr. Bullard was 

so complimentary of all the things that I had suggested. 

Chairman ANDREWS. So you can just say, ‘‘As a matter of law, 

he was right.’’ 

Mr. CHAMBERS. But, if I could—I think, Mr. Courtney, the—he 

went beyond, in his response, the real answer to your question, 

which is, you know, ‘‘What does this bill mean to employers?’’ 

And I must say, you know, employers are largely above the fray 

in connection with the bundled versus the unbundled. 
70 

Chairman ANDREWS. Right. 

Mr. CHAMBERS. Yes, they have responsibilities that are a result 

of that, but, by and large, as Mr. Goldbrum suggested, I think that 

is a business decision. 

And as Mr. Onorato suggested, the one thing—well, actually, one 

thing he didn’t suggest is that if, in fact, a bundled provider makes 

available an opportunity to say, ‘‘Yes, this is how we whack up the 

fee that we charge you,’’ the next question is, ‘‘Well, if we can get 

the 5500 for a cheaper price elsewhere, how much does that reduce 

our bundled fee?’’ 

And the question, often, is, ‘‘It doesn’t.’’ All right? It is a bundled 

fee. We provide this set of this package, these services. Here is the 

list of services. I don’t know that, necessarily, you are going to 

wind up being able to use that information to do the apples-to-apples analysis that we were talking about before. 

But I do think that the employer needs to be protected. This is 

where we were going. What this bill needs to do is that as it adds 

additional responsibilities to employers to assemble information, 

distribute that information both to the government and to participants, and to analyze its own fiduciary responsibilities, it needs 

protection in connection with a good-faith effort to fulfill those responsibilities. 

Chairman ANDREWS. Thank you, Mr. Chambers. 

Thank you, Mr. Courtney. We appreciate that. 

We are going to turn to Mr. Kline, for any concluding remarks 

he may have. 

Mr. KLINE. Thank you, Mr. Chairman. And I will be brief. 

I just want to say thank you. This is a terrific panel of experts. 

Even though many of you are lawyers, it is, really, a terrific—it is 

a terrific panel. And we thank you very much for your testimony 

and for the answers to the questions. 

And I thank you, Mr. Chairman. I yield back. 

Chairman ANDREWS. I thank my friend from Minnesota. 

I would like to thank both the majority and minority staff for 

their work in assembling this panel. I concur with my friend’s evaluation of the quality of your input this morning. 

The subcommittee will be considering your testimony in conjunction with the full committee, and moving forward with our discussion both of fee disclosure and qualified independent investment 

advice. 

And just to reiterate a couple of cleanup items—without objection, I would ask that the letter from the American Association of 

Retired Persons, dated April 22, 2009, be entered into the record. 

[The information follows:] 

April 22, 2009. 

Hon. ROBERT E. ANDREWS, Chairman, 

Subcommittee on Health, Employment, Labor, and Pensions, Committee on Education and Labor, U.S. House of Representatives, Washington, DC. 

Re: 401(k) Fair Disclosure for Retirement Security Act of 2009 

DEAR CHAIRMAN ANDREWS: AARP commends you and the other members of the 

Subcommittee on Health, Employment, Labor and Pensions for holding this important hearing on the need for comprehensive, informative and timely disclosure of fee 

and expense information to 401(k) plan participants. Thank you for providing us 

with this opportunity to submit this statement and the attached reports for the 

record of this hearing. AARP supports the enactment of the 401(k) Fair Disclosure 
71 

for Retirement Security Act of 2009 (401(k) Fair Disclosure Act) and urges the Subcommittee to approve this measure. 

With 40 million members, AARP is the largest organization representing the interests of Americans age 50 and older and their families. About half of AARP members are working either full-time or part-time. All workers need access to a retirement plan that builds on Social Security’s solid foundation. For those who participate in a 401(k) plan, better and easier to understand information is essential to 

help them make prudent investment decisions. 

There were approximately 50 million active participants in 401(k) plans in 2007, 

and overall, 401(k) plans held more than $3.0 trillion dollars in assets. These plans 

have become the dominant employer-based pension vehicle. The participants in 

these plans have a need and a right to receive timely, accurate, and informative disclosures from their 401(k) plans to help them prepare for a financially secure retirement. 

The fee information participants currently receive about their plan and investment options is often scattered among several sources, difficult to access, or nonexistent. Even if fee information is accessible, plan investment and fee information 

is not always presented in a way that is meaningful to participants. 

This must change because fees reduce the level of assets available for retirement. 

Never has this issue been more important than in these difficult economic times, 

when retirement savings have been greatly diminished, and every dollar counts. 

The Government Accountability Office (GAO) estimated that $20,000 left in a 

401(k) account that had a 1 percentage point higher fee for 20 years would result 

in an over 17 percent reduction—over $10,000—in the account balance. We estimate 

that over a 30-year period, the account would be about 25 percent less. 

Even a difference of only half a percentage point—50 basis points—would reduce 

the value of the account by 13 percent over 30 years. In short, fees and expenses 

can have a huge impact on retirement income security levels. 

AARP commissioned a report in 2007 to determine the extent to which 401(k) 

plan participants were aware of fees associated with their accounts and whether 

they knew how much they actually were paying in fees. The report revealed participants’ lack of knowledge about fees as well as their desire for a better understanding of fees. In response to these findings, the report suggested that information 

about plan fees be distributed regularly and in plain English, including a chart or 

graph that depicts the effect that the total annual fees and expenses can have on 

a participant’s account balance. I have attached a copy of this report entitled, 

‘‘401(k) Participants’ Awareness and Understanding of Fees’’, July 2007, for the consideration of the members of the Subcommittee. 

AARP commissioned a second study in 2008 to gather information and evaluate 

a model fee disclosure form developed by the Department of Labor and an alternative disclosure form developed by AARP. I have attached a copy of this report entitled, ‘‘Comparison of 401(k) Participants Understanding of Model Fee Disclosure 

Forms Developed by the Department of Labor and AARP.’’ The report suggested 

that a disclosure form that contains participant-specific information and actual dollar figures may improve participants’ comprehension of the information. The report 

also suggested other modifications in the DOL form that would make it more helpful 

to 401(k) plan participants. AARP provided a copy of this report to the Department 

of Labor as part of our comments on the Department’s proposed rule on fee disclosure for participant-directed individual account plans. 

AARP’s Public Policy Institute also published the attached paper entitled, ‘‘Determining Whether 401(k) Plan Fees are Reasonable: Are Disclosure Requirements 

Adequate?’’ The paper explains how excessive fees on 401(k) plans can drastically 

reduce the size of a retirement nest egg and documents the unsatisfactory state of 

fee disclosure and the lack of knowledge about fees among plan participants. The 

paper discusses the need for reform of the current regulatory framework to provide 

participants with the clear and basic information. 

AARP supports the enactment of the 401(k) Fair Disclosure Act. The bill would 

establish a solid framework for providing timely information about fees and expenses to plan participants in a format that is easy for them to understand. 

The bill would require plan sponsors to provide a complete picture of investment 

options to participants—including risk, fees, and historic returns, as well as certain 

basic information to help investors better understand their investment options and 

whether those investments will provide long term retirement security on their own 

or if greater diversification is needed. The comprehensive annual benefit statement 

required by the 401(k) Fair Disclosure Act would provide a more complete picture 

of a participant’s 401(k) status than available under current law. All of the information that a participant needs would be available in a single disclosure form, rather 
72 

than requiring a participant to piece together information from several different documents. 

AARP commends you and the Subcommittee for your commitment to preserve and 

enhance retirement security. We look forward to working with you and the other 

members of your Subcommittee to enact legislation as soon as possible that would 

require defined contribution plans to disclose comprehensive, informative and timely 

information about fees and expenses to plan participants. 

If you have any questions or need additional information, please feel free to call 

me, or please have your staff contact Cristina Martin Firvida of our Government 

Relations staff at 202-434-6194. 

Sincerely, 

DAVID P. SLOANE, Senior Vice President, 

Government Relations and Advocacy. 

Chairman ANDREWS. And I would ask them to stop sending these 

monthly reminders to me that I am 50 now, if they would. I will 

put it in despite the annoying reminders that they are sending me. 

Just to reiterate a couple of other pieces of business, Mr. 

Goldbrum, we invite you to submit your ideas as to how we could 

solve this problem. 

Mr. Chambers and Mr. Bullard, in particular, I think we would 

like to engage both of you in a discussion about this employer-liability issue, along with the minority, obviously. 

Thank you. You really have helped us get this discussion moving 

along, and identifying answers and questions, which is what we are 

here to do. We appreciate your contribution, and we appreciate the 

participation of the members. 

The subcommittee will be meeting tomorrow at 10:30 for the 

issue of how to control health-care costs in the United States. We 

try to take the small questions each day. We will be meeting tomorrow to do that. 

As previously ordered, members will have 14 days to submit additional materials for the hearing record. Any member who wishes 

to submit follow-up questions in writing to the witnesses should coordinate with majority staff within 14 days. Without objection, the 

hearing is adjourned. 

[Additional submissions of Mr. Miller follow:] 

April 24, 2009. 

Hon. GEORGE MILLER, Chairman, 

House Education and Labor Committee, U.S. House of Representatives, Washington, 

DC. 

DEAR CHAIRMAN MILLER: On behalf of the American Society of Pension Professionals & Actuaries (ASPPA), the Council of Independent 401(k) Recordkeepers 

(CIKR), and the National Association of Independent Retirement Plan Advisors 

(NAIRPA), we hereby express our support for 401(k) fee disclosure legislation (H.R. 

1984) which was recently reintroduced in the 111th Congress. 

ASPPA is a national organization of more than 6,500 retirement plan professionals who provide consulting and administrative services for qualified retirement 

plans covering millions of American workers. ASPPA members are retirement professionals of all disciplines including consultants, administrators, actuaries, accountants, and attorneys. The large and broad-based ASPPA membership gives it unusual insight into current practical problems with the Employee Retirement Income 

Security Act and qualified retirement plans with a particular focus on the issues 

faced by small- to medium-sized employers. ASPPA membership is diverse and 

united by a common dedication to the private retirement plan system. 

CIKR is a national organization of 401(k) plan service providers. CIKR members 

are unique in that they are primarily in the business of providing retirement plan 

services as compared to financial services companies who primarily are in the business of selling investments. The independent members of CIKR offer plan sponsors 

and participants a wide variety of investment options from various financial services 
73 

1The Investment Company Institute is the national association of U.S. investment companies, 

including mutual funds, closed-end funds, exchange-traded funds (ETFs), and unit investment 

trusts (UITs). ICI seeks to encourage adherence to high ethical standards, promote public understanding, and otherwise advance the interests of funds, their shareholders, directors, and advisers. Members of ICI manage total assets of $9.71 trillion and serve over 93 million shareholders. 2Letter from Matthew P. Fink, Associate Counsel, Investment Company Institute, to Morton 

Klevan, Acting Counsel, Plan Benefit Security Division, Department of Labor (June 21, 1976). 

companies without an inherent conflict of interest. By focusing their businesses on 

efficient retirement plan operations and innovative plan sponsor and participant 

services, CIKR members are a significant and important segment of the retirement 

plan service provider marketplace. Collectively, the members of CIKR provide services to approximately 68,000 plans covering 2.8 million participants and holding in 

excess of $120 billion in assets. 

NAIRPA is a national organization of firms which provide independent investment advice to retirement plans and participants. NAIRPA’s members are registered investment advisors whose fees for investment advisory services do not vary 

with the investment options selected by the plan or participants. In addition, 

NAIRPA members commit to disclosing expected fees in advance of an engagement, 

reporting fees annually thereafter and agreeing to serve as a plan fiduciary with respect to all plans for which it serves as a retirement plan advisor. 

ASPPA, CIRK and NAIRPA applaud the bill’s uniform application of its disclosure 

rules to all services providers, regardless of their business structure. Rather than 

mandating a particular business model, the amended legislation treats all business 

models equally and fairly. 

ASPPA, CIKR and NAIRPA particularly support the bill’s requirement that all 

401(k) service providers issue a fee disclosure statement to the plan administrator 

in advance of entering into a contract for services. Specifically, the bill would require that all plan fees be allocated into four uniform categories: (1) plan administrative and recordkeeping charges; (2) transaction-based charges; (3) investment 

management charges; and (4) other charges as may be specified by the Secretary 

of Labor. These categories will permit plan fiduciaries to assess the reasonableness 

of fees by allowing an ‘‘apples-to-apples’’ comparison to other providers, and will 

allow plan fiduciaries to determine whether or not certain services are needed, leading to potentially even lower fees. 

ASPPA, CIKR and NAIRPA commend Chairman Miller for his leadership in enhancing the disclosure of fees to retirement plan fiduciaries and participants, which 

is critical to securing a dignified retirement for American workers. The Committee’s 

consistent focus on retirement issues over the years has effectively increased attention on the retirement security of our nation’s workers. 

Again, ASPPA, CIKR and NAIRPA applaud your proposal, enthusiastically support it, and stand ready to assist you in your effort to enact it. 

Sincerely, 

BRIAN H. GRAFF, ESQ., APM, 

ASPPA Executive Director/CEO. 

Prepared Statement of the Investment Company Institute (ICI) 

The Investment Company Institute1 appreciates the opportunity to file this statement for the record in connection with the Subcommittee’s hearing on April 22, 

2009, on the ‘‘401(k) Fair Disclosure for Retirement Security Act’’ (H.R. 1984). The 

Institute appreciates the willingness of the Subcommittee and the full Committee 

to listen to our views as it considers H.R. 1984. We agree with the approach taken 

by the bill to ensure that participants receive key information on all investment 

products. Disclosure that is focused and useful to participants serves an important 

role in helping workers be better savers and better investors. However, the Institute 

believes H.R. 1984 is flawed in several respects, and we cannot support it in its current form. Below we reiterate our support for an effective disclosure regime that 

provides useful information to employers and plan participants. Then we address 

our concerns with H.R. 1984. 

Improving Disclosure 

The Institute has consistently supported meaningful and effective disclosure to 

401(k) participants and employers. In 1976—at the very dawn of the ERISA era— 

the Institute advocated ‘‘complete, up-to-date information about plan investment options’’ for all participants in self-directed plans.2 We also have consistently supported disclosure by service providers to employers about service and fee arrange-
74 

3See Statement of Investment Company Institute on Disclosure to Plan Sponsors and Participants Before the ERISA Advisory Council Working Group on Disclosure, September 21, 2004, 

available at http://www.ici.org/statements/tmny/04—dol—krentzman—tmny.html. 

ments.3 Disclosure reform should address gaps in the current 401(k) disclosure 

rules. The Department of Labor’s current participant disclosure rules cover only 

those plans relying on an ERISA safe harbor (section 404(c)); no rule requires that 

participants in other self-directed plans receive investment-related information. In 

plans operating under the safe harbor, the information participants receive depends 

on the investment product, resulting in uneven and difficult to compare disclosure. 

Disclosure reform also should clarify the information that service providers must 

disclose to an employer on services and fees to allow the employer to determine the 

arrangement is reasonable and provides reasonable compensation. Where the service provider’s services include access to a menu of investment options, employers 

should receive from that provider information about the plan’s investments, including information about fees. 

Initiatives to strengthen the 401(k) disclosure regime should focus on the decisions that plan sponsors and participants must make and the information they need 

to make those decisions. The purposes behind fee disclosure to plan sponsors and 

participants differ. 

Participants have only two decisions to make: whether to contribute to the plan 

(and at what level) and how to allocate their account among the investment options 

the plan sponsor has selected. Disclosure should help participants make those decisions. Participant disclosure should focus on key information about each investment 

option—including its objectives, risks, fees, and performance—and information 

about any other plan-level fees assessed against the participant’s account. Voluminous and detailed information about the components of plan investment fees could 

overwhelm the average participant and could result in some employees deciding not 

to participate in the plan or focusing on fees disproportionately to other important 

information, such as investment objective, historical performance, and risks. 

On the other hand, plan sponsors, as fiduciaries, must consider additional factors 

in hiring and supervising plan service providers and selecting plan investment options. Information to plan sponsors should be designed to meet their needs effectively. 

Plan sponsors should obtain information from service providers on the services 

that will be delivered, the fees that will be charged, and whether and to what extent 

the service provider receives compensation from other parties in connection with 

providing services to the plan. These payments from other parties, commonly called 

‘‘revenue sharing’’—but which are really cost sharing—often are used in a variety 

of service arrangements to defray the expenses of plan administration. Requiring a 

service provider to disclose to plan sponsors information about compensation it receives from other parties in connection with providing services to the plan will allow 

the plan sponsor to understand the total compensation a service provider receives 

under the arrangement. It also will bring to light any potential conflicts of interest 

associated with payments from other parties in connection with the plan’s services 

or investments, for example, where a plan consultant receives compensation from 

a plan recordkeeper. 

Concerns with H.R. 1984 

H.R. 1984 is intended to close the gaps in current law by setting out the rules 

for disclosure of service provider compensation and ensuring that participants in all 

participant-directed defined contribution plans have information on the investments 

available to them, regardless of type. However, many of the details of the bill need 

improvement, and in some cases the bill includes unprecedented and unnecessary 

provisions that are not related to improving disclosure. 

It is difficult for affected parties to read the bill and know what information about 

investment products must be disclosed and who must disclose it. The bill uses imprecise language and undefined terms that service providers will have to interpret 

broadly in order to avoid the bill’s penalties, resulting in disclosure that is confusing 

to plan fiduciaries and participants and unnecessarily costly to prepare. Lack of certainty on the disclosure requirements also could lead to less standardized disclosure, 

which makes comparisons more difficult. 

Many of our concerns with the bill arise because the bill confuses a 401(k) plan’s 

services with its investments. Plan sponsors and participants need disclosure about 

both. But without some important clarifications, the bill will force investment disclosure into a service provider box, which will add unnecessary costs that will be borne 

by participants. 
75 

4Profit Sharing/401k Council of America, 51st Annual Survey of Profit Sharing and 401(k) 

Plans (2008). 

A disclosure regime needs to recognize the central role that recordkeepers play 

in providing investment information on plan investments. When a plan contracts 

with a recordkeeper to receive administrative services and access to investment 

products, the plan fiduciary needs to know the services to be provided, the direct 

and indirect compensation the recordkeeper receives and the fees and other key information about the investment products used by the plan. As is routine best practice now, plan recordkeepers consolidate information on plan investments into a single and useful form, as they have a direct relationship and contract with the plan. 

Recordkeepers, through their contracts with mutual fund firms, insurance companies, and other investment providers, ensure they have the information they need 

to provide disclosure on plan investments. Recordkeepers rely on the information 

provided to them, since for many products it typically comes from disclosure that 

investment products make under other laws (a point the bill recognizes). 

Unfortunately H.R. 1984 does not recognize this central role played by recordkeepers. It defines a contract that requires individualized disclosure 10 days in advance to include ‘‘the offering of any investment option.’’ In addition, it defines 

‘‘service’’ to include ‘‘a service provided directly or indirectly in connection with a 

financial product in which plan assets are to be invested.’’ 

The Institute also is concerned that the bill contains an unprecedented mandate 

that 401(k) plans offer an index fund of a specific type and requires full service recordkeepers to disclose separate charges for recordkeeping even when there are no 

separate charges. 

Below we detail the Institute’s primary concerns with the bill. The bill has other 

technical and substantive problems about which we will provide comments separately to Committee staff. 

A. Index fund mandate 

• As a condition of section 404(c) liability relief for the investment decisions of 

plan participants, the bill imposes a new condition that the plan sponsor select an 

index fund. (p. 27, line 13). The requirement is inappropriate and sets a dangerous 

precedent for the government to pick the investment options for private 401(k) 

plans. 

• It is not clear what fund would satisfy the requirement to match the performance of the entire United States equity or bond market and in addition is ‘‘likely 

to meet retirement income needs at adequate levels of contribution’’ for any participant. This requirement includes both an objective and a subjective standard. An 

S&P 500 index fund, which is the most common index used in equity index funds, 

would not appear to meet the objective standard. In addition, it is not clear what 

fund would meet the subjective standard, because no one index fund is a single investment solution for all retirement savers in all markets. Accordingly, although 70 

percent of plans currently offer a domestic equity indexed investment,4 it appears 

that very few plans could satisfy this provision now. In addition, the subjective 

standard exposes plan fiduciaries to significant new liability in selecting index funds 

for plans. 

B. Service provider disclosure 

Section 111(a)(1)—General requirements 

• The bill apparently would make a mutual fund that offers an investment option 

to a plan a service provider, because anyone offering an investment is treated as 

offering a contract for services. (p. 2, line 21-22). The apparent result is that a plan 

must receive a separate and individualized disclosure from each investment product, 

rather than (as we expect was intended) the plan receive a single disclosure that 

lists the fees of all of the plan investments. An investment product like a mutual 

fund would not have the data necessary to estimate how much of the plan’s assets 

will be invested in that fund. In any event, mutual funds are prohibited by federal 

law from negotiating with individual shareholders over the fees to be paid for a particular share class of the fund. 

• The bill also appears to make a person that provides services to a mutual fund 

a service provider for purposes of the new disclosure requirements. This is done 

through the expansive new definitions of ‘‘service’’ and ‘‘service provider’’ under section 111(e)(2) and (4)—which confuse the important distinction between the investments a plan makes with the service providers it engages. (p. 19, lines 13 and 23). 

These provisions indicate that anyone providing services to an investment option in 

which a plan invests is treated as providing services that are subject to the new 

disclosure requirements and is an ERISA plan service provider. For example, mu-
76 

tual funds have virtually no employees so, along with the fund’s investment adviser, 

funds engage numerous accountants, lawyers, printers, brokers, and others to provide services to the mutual fund. The definition of service and service provider in 

the bill would indicate that ERISA plan fiduciaries must receive a disclosure concerning all of the services and ‘‘charges’’ paid by a mutual fund to any mutual fund 

service providers and to fund directors. Relevant information about all the payments 

a mutual fund makes to its service providers is disclosed in SEC required documents. H.R. 1984 would go beyond that without justification. This provision cannot 

be reconciled with the provisions in ERISA that exclude service providers to mutual 

funds from being treated as ERISA plan service providers. See ERISA § 3(21). This 

provision is unworkable since a mutual fund may have hundreds of service providers, including scores of brokers. Of course, ICI believes that revenue sharing and 

other payments received by recordkeepers from mutual funds, investment advisers 

or other entities should be disclosed by the recordkeeper and that plan fiduciaries 

should receive basic information on the expenses associated with investing in the 

fund. 

Section 111(a)(2)—Unbundling and transaction fees • Requiring unbundling of recordkeeping charges even when there are no separate charges for the services will result in inaccurate and misleading numbers that 

favor one business model over another. (p. 3, line 16). Since the estimates required 

under the bill will not be based on market transactions, service providers face significant liability risk even for reasonable attempts to comply with the requirement. • There is no definition of ‘‘transaction-based charges.’’ (p. 3, line 24). We expect 

this is intended to cover items like the sales charge (load) on investments, and the 

costs for accessing individual plan services like plan loans. (A similar provision in 

the participant disclosure portion of the bill is clearer on this point.) Because of the 

expansive definition of ‘‘service,’’ however, this could be read to require disclosure 

of internal commissions and transaction costs within a pooled investment product. 

These are not operating expenses or fees but part of the capital cost of acquiring 

and selling securities. Mutual funds are required to disclose the fund’s portfolio 

turnover rate, the best measure of the cost of portfolio trading (and which allows 

comparisons among funds). In addition, funds make available in the Statement of 

Additional Information a host of information about commissions, including aggregate brokerage commissions paid during the last three years and information about 

the fund’s trading policies. 

Section 111(a)(3)—Total dollar amounts • Requiring disclosure of total dollar amounts when a particular fee is charged 

on another basis (like percentages or basis points, or as a charge per usage) requires 

a service provider to make a number of assumptions. (p. 4, line 6). For example, 

the service provider will need to predict to which investments participants will direct their accounts, and how often participants will use a particular plan feature 

like loans. The estimate is only as good as the underlying assumptions. This is why 

a service provider often provides dollar estimates when it believes that it can make 

reasonably accurate assumptions (long-standing plan which has a consistent history 

of participant behavior) and may not provide a dollar estimate when it cannot 

(brand new plan starting with zero plan assets). For example, assume a plan without a loan feature adds one that will require a $20 loan fee for each new loan. How 

is the service provider to estimate how many loans will be taken out? 

Section 111(a)(6)—Financial relationships 

• The disclosure of financial relationships is potentially very broad and vague. It 

is unclear what it means to disclose ‘‘the amount representing the value of any services.’’ (p. 5, line 16). It is also unclear whether this requires a service provider to 

disclose the services and value of the services (even without actual payments) that 

are made between the service provider and its affiliates. Plan fiduciaries need to 

know total compensation paid under an arrangement and actual payments. Requiring disclosure of the value of services provided by affiliates does not apprise the fiduciary of any conflicts that are not otherwise apparent and could require disclosure 

of amounts that are not actually paid between affiliates. 

• In fact, we believe that the disclosure of direct and indirect compensation as 

well as compensation earned by an affiliate in connection with plan services—already required by the bill—will be more effective than requiring a service provider 

who is not a fiduciary to determine that it may have a material financial relationship triggering disclosure. ERISA’s prohibited transaction rules already prohibit 

transactions between the plan and parties-in-interest and prohibit fiduciaries from 

self-dealing. 

• If this provision is applied within a mutual fund, it will require extensive information of little value. For example, it could require a disclosure that various entities 

within an integrated fund complex purchase joint insurance and other common prac-
77 

tices involving mutual fund affiliated transactions, all of which occur only in compliance with stringent safeguards under the Investment Company Act of 1940 and 

SEC regulations. 

• The requirement to disclose any personal, business or financial relationship 

with the plan sponsor, the plan and any plan service provider or affiliate thereof 

will be nearly impossible to satisfy. (p. 6, line 9). For example, this provision would 

be triggered if the plan’s accounting firm happens to switch its 401(k) recordkeeper 

to the same recordkeeper that services the employer’s plan. It will be impossible for 

one service provider to monitor constantly whether it is doing business with another 

plan service provider or its affiliate. 

C. Participant disclosure 

Section 111(b)(3) 

• The bill requires that fees be disclosed to participants in the actual dollar 

amount rather than on a percentage basis. (p. 15, line 5). Service providers currently do not collect or provide fee information on this basis and it will be extremely 

expensive to create the systems to report the actual dollar amount of fees associated 

with each participant account. While it would be possible to provide a fee estimate 

based on a snapshot of a participant’s account (e.g. based on the asset allocation and 

balances in a participant’s account on a particular date), this disclosure will undermine a participant’s ability to compare costs of different investment options. For example, if a participant has 90% of his or her account invested in a fund with a 

0.40% (40 basis point) expense ratio and 10% invested in a fund with a 1.00% (100 

basis point) expense ratio, the participant might think the first fund is relatively 

expensive and the second is cheaper. Comparability is best measured through use 

of percentages or basis points or through a representative example (such as the dollar amount of fees for each investment for each $1,000 invested). This is why the 

SEC, which has looked at this repeatedly over the years, requires mutual funds to 

disclose the expense ratio up front and a representative example in the front of the 

prospectus and in shareholder reports. 

Section 111(c)—Electronic disclosure 

• The bill does not sufficiently promote electronic disclosure. Electronic disclosure 

should be the presumed method of disclosure to plan fiduciaries and participants 

and paper copies should be available on request. 

Section 111(d)—Application to insurance and bank products 

• The bill needs to be modified to ensure that there is a sufficient level of fee disclosure for traditional fixed interest insurance and bank products. The bill simply 

requires that the Secretary of Labor issue rules to identify products that provide a 

guaranteed rate of return. The bill should direct the Secretary to require disclosure 

that alerts participants to the risks and economics of these products, for example 

that the cost of the fixed return product is built into the stated rate of return because the insurance company or bank covers its expenses and profit margin by any 

returns it generates on the participant’s investment in excess of the stated rate of 

return. 

D. Effective date 

• Allowing only one year for service providers and plan administrators to come 

into compliance with the provisions is unrealistic. DOL will not have issued final 

rules implementing the statutory provisions with enough time for service providers 

to adjust during that period. 

The mutual fund industry is committed to meaningful 401(k) disclosure, which is 

critical to providing secure retirements for the millions of Americans that use defined contribution plans. We thank the Committee for the opportunity to submit this 

statement and look forward to continued dialogue with the Committee and its staff. 

[Questions for the record requested from Mr. McKeon follow:] 

[VIA FACSIMILE], 

U.S. CONGRESS, 

Washington, DC, May 6, 2009. 

Mr. JULIAN ORONATO, CEO, 

ExpertPlan, Inc., Building 400, Suite 300, East Windsor, NJ 

DEAR MR. ORONATO: Thank you for testifying at the Wednesday, April 22, 2009, 

Subcommittee on Health, Education, Labor, and Pensions hearing on ‘‘H.R.1984, the 

401(k) Fair Disclosure for Retirement Security Act of 2009.’’ 
78 

The Senior Republican Member on the Committee, Congressman Howard P. 

‘‘Buck’’ McKeon had additional questions for which he would like written responses 

from you for the hearing record. 

Senior Republican Member McKeon asks the following questions: 

During your oral testimony before the Committee, you stated that your firm provides startup 401(k) plans for an annual charge of $600, plus $36 per participant 

annually, and that these firms typically had 15 employees. To assist the Committee 

in our research on fee disclosure, please answer the following questions and provide 

a copy of a standard contract and a fee schedule or other fee disclosure material. 

Unless otherwise indicated, the questions below are with reference to the hypothetical startup plan and costs noted above. 

1. Do you have a different fee schedule when dealing with a third party administrator (TPA) and a single employer? If so, why, and what are the differences in 

these schedules? 

2. Does the above-quoted cost include all the services required to administer a 

plan and meet regulatory compliance requirements? If not, which additional services 

would a plan sponsor need to secure? What cost do you charge for these additional 

services? 

3. Does your firm charge any one-time (or recurring) set-up or conversion fee to 

plan sponsors? 

4. Are plans offered at the above-referenced charge restricted in the investments 

that its sponsor may select? If yes, what are the criteria for any such restriction? 

5. Which funds are on your platform? Is revenue sharing a criterion for the platform? Do you assess an additional charge for non-platform investments? 

6. Do you receive any other sources of revenue, such as 12b-1 or sub-transfer 

agency fees? If so, are these revenues disclosed to the plan sponsor? 

7. Does the above-referenced fee include nondiscrimination testing for all types of 

plans? 

8. Does your firm assess additional fees for restating prototype plans? If so, how 

much? 

9. Does your fee include a quarterly benefit statement? 

10. Does the above-referenced fee include the processing of loans, distributions, 

and rollovers? If it does not, what fees are associated with these services? 

Please send your written response to the Committee on Education and Labor staff 

by COB on Wednesday, May 20, 2009—the date on which the hearing record will 

close. If you have any questions, please contact the Committee. Once again, we 

greatly appreciate your testimony at this hearing. 

Sincerely, 

ROBERT E. ANDREWS, Chairman, 

Subcommittee on Health, Education, Labor, and Pensions. 

[Whereupon, at 12:11 p.m., the subcommittee was adjourned.] 

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