Breaking News - DOL Proposes New Fee Disclosure Regulations

The U.S Department of Labor issued a press release today regarding proposed regulations on improving fee disclosure to participants from plan sponsors. The proposed regulations are slated to be published in tomorrow's (7/23/2008) Federal Register and would be effective for plan years beginning January 1, 2009 onwards.

Secretary Elaine Chao is quoted in the release as stating, "Our proposal is consistent with public consensus that workers need clear and concise information, not dozens of pages of 'legalese,' about the investment options available under their plans, and that they would benefit greatly from having that information in a comparative format."

According to the press release:

The centerpiece of the proposed regulation is a requirement to provide investment-related information in a comparative chart or similar format. As part of the proposal, the department has developed a model chart for complying with this requirement, while giving plan fiduciaries the flexibility to design their own charts or comparative formats. The proposal would also require plan fiduciaries to disclose basic information about the plan and its investment options, such as what options are available under the plan, how to give investment instructions, investment returns and fees and expenses, and how to obtain more detailed information. This information would be given to participants on a regular and periodic basis.

In addition, the department is proposing conforming changes to its regulation under section 404(c) of the Employee Retirement Income Security Act.

More transparency is always a welcome trend in our industry. This is good news for 401(k) participants, however, it may be not so good news for asset gatherers. Fund companies with low expense ratios clearly stand to gain here, because more disclosure is likely to expose their purportedly better value proposition to plan sponsors, while the companies that deal in group-annuity or wrap based products might be reeling under the requirements of the proposed regulations. Both sides has ample opportunity to present their viewpoints when the rulemaking body asked the industryy's input and the comment period/RFI collection began. There is a wealth of public information available here.

In the worst case, with a healthy dose of skepticism, I expect a bloody battle from industry lobbyists via the Congress in possibly trying to derail or circumvent the DOL's regulations through some creative or competitive lawmaking on this issue that might preserve the stalemate on fee disclosures. However, this time the regulations seem to have staying power.

More to follow on this once the proposed regulations are released tomorrow.