The debate over exchange traded funds (ETFs) in 401(k) plans is intensifying. Many people want, even demand, a law that balances the cost and benefits of the transparency of investment and transaction fees. Experts say the law must be crafted in such a way that disclosure isn’t a pain for employers, but is still meaning for workers.
The bill, sponsored by Rep. George Miller, D-Calif., would require firms to disclose fees, conflicts of interest and information on risk, return and objectives. Firms would also be required to offer workers an index fund as an investment choice.
Some say that the worst-case scenario is that such a law would lead to such high costs that firms would dump 401(k) plans altogether, says Robert Powell for Market Watch. Or the law could lead workers to choose the funds that are the least expensive, to their own detriment.
If plan sponsors were taking their jobs seriously, there would be more of a push to include ETFs in 401(k) plans.
Plan sponsors are required to understand and analyze all expenses including both administrative expenses and fund expenses. W. Scott Simon for Morningstar suggests that most plan sponsors don’t even understand what their fiduciary responsibilities are, so how can we expect them to act properly?
One section of the Employee Retirement Income Security Act (ERISA) puts it simply: a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan.