NCPA - National Center for Policy Analysis

BETTER SAVINGS PLANS

December 3, 2007

A bill recently introduced in the House to fix the lack of meaningful fee information in 401(k)'s should be a high priority for Congress, says the New York Times.

Consider:

  • Under current law, 401(k) providers, such as mutual fund families or insurance companies, are not held to any consistent standard for disclosing fees.
  • As a result, employers often have insufficient information when they make decisions about a 401(k)'s options and services.
  • For instance, money management firms routinely list administrative fees, which are generally paid for by employers, as "zero."
  • But in truth, administrative costs are generally covered by charging higher investment fees, which come out of employees' account balances; the House bill would require 401(k) providers to break out all costs.

The bill would also correct current law, which does not require that employees be told about fees that reduce their investment returns, says the Times.  Opponents of the measure, mainly 410(k) providers, argue that more information would be more confusing. It could certainly be made that way, full of legalese and equations.  But it need not be.  Fees are a major determinant of how much money one has at the end of a lifetime of saving.  It's ridiculous to maintain that savers should be kept in the dark.

Source: Editorial, "Better Savings Plans," New York Times, December 3, 2007.

 

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