WASHINGTON -- A key House lawmaker said yesterday that Congress needs to consider making companies that manage 401(k) plans give clearer, more complete information on fees, which can drain thousands of dollars from a worker's retirement savings.
"We have to ask whether all these fees are necessary, and we have to examine whether they are undermining workers' retirement security," said Representative George Miller, a California Democrat and chairman of the House Education and Labor Committee.
Millions save diligently for retirement, only to discover later that "there's a lot of people who are putting their hands into that money," Miller said.
Current law does not explicitly require disclosure to investors of comprehensive information on fees connected with 401(k) plans, the employer-sponsored vehicles workers use to make tax-deferred payments into retirement accounts.
Representative Howard McKeon of California, a Republican, warned Congress shouldn't overload workers with information.
The chairman of the American Benefits Council, which represents employers and 401(k) plan providers, said the group supports disclosure of fees, provided that the information is useful and relevant.
"Congress should be careful not to address the fee issue in such a way that would impose undue costs on employers and thereby undermine the voluntary employer-sponsored system or inadvertently increase fees," Robert G. Chambers testified.
Nearly 50 million US workers have invested some $2.5 trillion in 401(k) plans. About 80 percent of investors in 401(k) plans do not know how much fees are eroding their account balances, according to a report issued in November by congressional investigators.
The Government Accountability Office urged Congress to consider requiring the disclosure of 401(k) fee information in a way that would allow investors to compare plan options. The report said the Labor Department should require that investors get a summary of all fees paid either from plan assets or by participants.
With the Democrats now controlling the House, prospects are strong for such legislation in the coming months.
The math is fairly simple: Consider a 45-year-old person who leaves $20,000 in a 401(k) account until retirement. If the average net return is 6.5 percent -- a 7 percent investment return minus a 0.5 percent charge for fees -- the account will grow to $70,500 at retirement.
If the fees are 1.5 percent, the total falls to $58,400 at retirement.