As in most retirement plans, Oakland County, Mich., employees pay fees to the investment companies that manage their retirement funds. And, those fees are listed in quarterly statements that Oakland County sends to its retirement plan participants. “We don't hide any fees from the participants,” says Doug Williams, the county's retirement administrator. “We're very upfront with all our information.”

As with all matters financial, retirement plan participants cannot expect a free lunch when it comes to paying fees on their accounts, but Congress is concerned that some plan providers are dining on champagne and caviar with the fees they collect from investors. Legislators worry that not all plan sponsors take the time, like Oakland County, to keep costs at a minimum and inform participants about how much they are paying for plan management services.

Seeking full disclosure

With more than 50 million American workers investing $2.7 trillion in 401(k) plans nationally, the amount of fees that participants are paying has become a major issue on Capitol Hill. While the number of 401(k) participants includes a small number of public sector employees, congressional data found that an additional 3.8 million public sector workers have invested $161 billion in 457 deferred compensation plans, as of the first quarter of 2007.

What irks some legislators most is the lack of information available to participants in an easily understandable format. “Today, because of weak disclosure rules, most workers don't even know how much they are paying in fees,” said Rep. George Miller, D-Calif., chairman of the House of Representatives Education and Labor Committee, during committee hearings last March.

According to a U.S. Government Accountability Office (GAO) report, 83 percent of American workers said they do not know how much they are paying in fees for their retirement plans. The question of the size of fees is hardly insignificant, because assets in retirement plans may remain in accounts for decades. The GAO gave as an example a 45-year-old person who leaves $20,000 in a retirement account for 20 years. If the average net return were 6.5 percent (a 7 percent investment return minus a 0.5 percent charge for fees), the account would grow to $70,500. If the fee were 1.5 percent, the person would end up with $58,400. “Even a seemingly small difference in the fees that workers pay can make an enormous difference in the overall size of their [retirement] account balance,” Miller said at the hearings.

The GAO report said that for the system to work more effectively, better information should flow to the plan sponsors and to the participants. “For plan sponsors, understanding their expenses helps fulfill their fiduciary responsibility to act in the best interest of plan participants. It is important that both plan sponsors, typically the employer, and participants, as investors, receive and understand the fee information necessary to make informed decisions,” the report stated. In July, Miller introduced legislation, the 401(k) Fair Disclosure for Retirement Security Act of 2007, that details rules and regulations to resolve the issues uncovered by the GAO report.

At a House Ways and Means Committee hearing on the proposed legislation in October, Chairman Charles Rangel, D-N.Y., said the issue was important “for millions of American workers who are being asked to shoulder the cost of saving adequately for their retirement.” A number of industry experts, including several familiar with the public sector, testified at the session, much of which focused on the nature of disclosure, both at the employer and at the participant levels. A number of presenters cited the need for fuller disclosure to employers but advocated less detailed and simpler information for participants.

In testimony before the committee, Mindy Harris, president of the Lexington, Ky.-based National Association of Government Defined Contribution Administrators (NAGDCA), said that many of the abuses identified by the committee do not take place in the public sector. “The very nature of ‘local’ control and ‘open government' laws dictates a great deal of oversight in state and local government plans,” she said, citing specifically governmental rules on procurement that require regular review of most contracts and employee participation in plan oversight committees.