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Greater transparency needed in pension fees


It isn't often that we agree with Rep. George Miller, D-Calif., who chairs the House Education and Labor Committee.

But in calling for greater transparency of defined contribution plan fees paid by participants, Rep. Miller is right on target.

Participants have plowed tens of billions of dollars into these plans, which are chiefly 401(k) plans. Yet, in many cases, employers and plan administrators do not provide readily accessible information in an easy-to-understand format showing how much of participants' contribution dollars are going to pay for overhead, such as fees charged by mutual fund providers.

As Rep. Miller puts it, because of weak disclosure rules, employees aren't in a position to know how much they are paying in fees.

Just as bad, there are no standards that distinguish when a service provider fee is reasonable and when it is excessive.

There is the temptation to say that this isn't a big deal as the difference in the fees from one mutual fund provider may be small. But small differences in fees over a long period of time can result in big differences in defined contribution plan account balances.

Rep. Miller noted a one percentage point difference in retirement plan fees can reduce the size of an account balance by nearly 20%.

Defined contribution plan accounts belong to employees and they have a right to know how much of their money is going to pay for service providers. This is an area ripe for regulatory guidance and, failing the prompt action of regulators, legislative intervention.