WASHINGTON — Congress and government regulators are planning an array of moves to strengthen oversight of 401(k) accounts, which have become the linchpin of retirement savings for millions of Americans but are often burdened by hidden fees that chip away at their value.
Rep. George Miller (D-Martinez), a member of the Democratic leadership and the new chairman of a committee that has authority on retirement matters, said he planned to hold hearings on 401(k) fees this year as part of a broader effort to examine issues that undermine the financial security of older Americans.
"All of these fees and commissions, all of these charges at some point end up coming out of the 401(k) owner's account," said Miller, chairman of the House Committee on Education and Labor. "I think we have an obligation to make sure that those costs are proper."
Separately, the Labor Department is moving forward with three initiatives to make the expenses of 401(k) plans more transparent to workers, employers and regulators. The Government Accountability Office recently concluded that employees get information about their plan's expenses in a "piecemeal" fashion, and that regulators need more details about those charges to conduct effective oversight.
The department's initiatives are in different stages of development, but proposals to improve the reporting of plan expenses are expected in the spring.
"We're very focused on getting these new proposals out the door and moving," said acting Assistant Labor Secretary Bradford Campbell, who is overseeing the effort.
By law, employers are supposed to ensure that the fees charged to manage 401(k) investments and process the paperwork are reasonable.
In practice, many employers simply pass these fees on to their workers and make no effort to reduce costs, The Times reported last year. The GAO study largely echoed the paper's findings. It said obsolete regulations impeded effective oversight and made it hard to identify potential conflicts of interest among investment companies and plan administrators -- conflicts that could result in higher costs to participants.
"The GAO recommendations are generally consistent with the regulations we have been developing," Campbell said. "Improved disclosures in this area are very important."
Retirement savings plans, such as 401(k)s, were once an afterthought in policy circles, where attention focused overwhelmingly on traditional pensions that paid retirees a guaranteed amount. Although many companies have backed away from pensions, 401(k) plans have spread rapidly, and they now cover 47 million Americans -- more than double the number in the traditional plans.
At the same time, critics contend it is often difficult for the public to assess and compare 401(k) investment options, in large part because costs may be hard or even impossible to track. Although such fees may be a fraction of 1%, they can compound to tens of thousands of dollars over the long term.
"When you're buying a banana, a lot of people know whether they're paying too much or too little," noted J. Mark Iwry, a former senior Treasury Department official and Brookings Institution scholar. "When you're buying a 401(k), it's much harder to tell."
As a result of this confusion, "policymakers increasingly view 401(k) fees and expenses as a consumer protection issue," he said.
The Democratic Party's takeover of Congress is another reason firmer oversight is in store. The party's economic agenda emphasizes fairness to working people, and retirement security has emerged as one of the issues lawmakers want to spotlight.
"The general question for me is what are people doing with other people's money?" said Miller, who is also chairman of the House Democratic Policy Committee.
According to the GAO, the biggest expenses in such plans are "investment fees," charged by companies that manage the funds and typically borne by workers. Recordkeeping costs for administering a fund lead to another significant fee. Although traditionally charged to employers, they are increasingly passed on to workers, the GAO found in its November report.
Costs are reported in different ways. Mutual funds, which represent about half of 401(k) investments, report a fund's expense ratio -- a sweeping measure that reflects much of the fund's overall expense -- in a fund's prospectus, which is mailed to shareholders.
Costs associated with actual trading may not be reported separately. Rather, they are deducted from a fund's total return and reflected in the account balance.
For 401(k) investments that are not in mutual funds, such as certain insurance products, employer stock and money markets, workers may not be notified of some costs, depending on their plan's policies.
Even in the industry, there is widespread recognition that many customers have little awareness of costs, including cases in which the information is publicly available.