Yesterday’s Wall Street Journal (subscription required) contained this article–“Following the Money:401(k) Fees Get a Look.” The article discusses the recent SEC inquiries into what payments mutual-fund companies or investment advisors make to employers to ensure that the mutual fund company funds are included in a line-up of 401(k) plan options (so-called “pay-to-play” arrangements). (Read about it here.) The article highlights some of the problem areas in 401(k) fee disclosure:
Lori Richards, director of the SEC’s office of compliance inspections and examinations, said earlier this week that the agency wants “to make sure investors, however they invest in mutual funds, understand exactly what their money is paying for.”Currently, though, investors who hold funds in 401(k) accounts may not see much in the way of routine fee disclosure. While 401(k) participants get a prospectus or more limited fund profile when they first invest in a fund, they may not receive the annual and semiannual reports that provide updates on fund performance and fees. That is the case despite a general requirement that funds supply those reports to shareholders.
How can that be? Because under securities law, the retirement plan — and not the individual plan participant — is considered the investor in the fund, says John Heine, an SEC spokesman. “The plan gets whatever [information] goes to any other shareholder,” he says. The Labor Department doesn’t require 401(k) plans to supply those fund reports to plan participants, although some plans voluntarily do so.
The article quotes Ann Combs, assistant secretary of Labor, as saying that, after the SEC completes its review, the DOL will reconsider its 401(k) rules, “including what sorts of information should be provided to workers in retirement plans automatically.”
Another article on the topic from CFO.com: “SEC Eyes Pay-to-Play for 401(k)s.”
And don’t miss this op-ed by Kathleen Pender from SFGate.com: “SEC shines light on 401(k) fees.”