Given recent Congressional interest in 401(k) plan oversight, we provided survey respondents with an opportunity to share their views on proposed legislative changes to 401(k) requirements. To learn more about the views of sponsors on proposed legislative changes, we asked survey respondents to share their opinions on proposed legislative changes requiring (1) sponsors to include a “low-cost” index fund option to all 401(k) plan menus and (2) providers of bundled 401(k) services to disclose fee information on plan components to plan sponsors. Respondents that expressed strong support or strong opposition to the proposed legislative changes were given a chance to further discuss their positions in two open-ended survey questions on the proposed 401(k) legislative changes. All survey respondents were given the chance to respond to an open-ended question on general 401(k) requirements.

Many of the sponsors surveyed were supportive of the proposed legislative change to include a “low-cost” index fund option in all 401(k) plan menus. Some of the sponsors we surveyed stated that their plans currently contain one or more index fund options, and cited the strong performance and lower costs of index funds as reasons to support the proposed legislative change. One sponsor stated that requiring low cost index funds is good for participants who are not “savvy investors” and “do not understand the impact of fees on their retirement savings.” The sponsor goes on to say that requiring low-cost index funds may help participants achieve retirement savings goals, and may encourage sponsors to educate participants about how plan expenses may impact their retirement savings.

Other sponsors, however, worried that regulating the types of investment options that plans offer will interfere with their ability to make the types of decisions that are most appropriate for their participant demographic. Specifically, one sponsor stated that the “appropriate investment style and vehicle” fluctuates with the economy, workforce demographics and the plan’s administrative arrangements. Consequently, the sponsor believed that mandating investments beyond the requirements imposed by section 404(c) of ERISA would “micro-manage” sponsors and is “contrary to the basic prudent person standard that fiduciaries have managed to since 1974.” In addition to limitations on sponsors’ decision-making capacity, another sponsor stated that requiring an index fund does not guarantee that the fund will be “good” and could become another way that “uneducated participants will lose money.” Some sponsors were also unsure about the ability of the proposed legislation to define and measure “low-cost” adequately. According to one sponsor, defining low-cost would be difficult because most product-related pricing varies from plan to plan and smaller plans may not have the same access to “true” low-cost index funds as larger plans.

Many of the sponsors surveyed were also supportive of proposed legislative changes to fee disclosure requirements for bundled service providers. Some sponsors stated that mandatory fee disclosure by service providers could provide plan sponsors and participants with better information to facilitate sound decision-making. While sponsors generally supported proposed fee disclosure, some sponsors expressed concern about the amount and manner in which fee information is disclosed to sponsors and participants. Given the complexity of the information being provided, some sponsors felt that fee disclosures should be simple and easy to understand. Some sponsors also stated that fees should be disclosed in a transparent manner. Furthermore, several sponsors suggested that disclosures would work best if standardized, and that legislation may help providers be consistent in their data preparation and allow “apples to apples” comparisons of fee information.

In our survey, sponsors also shared their views on general 401(k) requirements. Some sponsors expressed opinions about the need for greater participant education. For example, some sponsors discussed their uncertainty about the ability of the average plan participant to understand complicated plan disclosures. Specifically, some sponsors stated that the complexity and volume of disclosures may confuse some plan participants and prevent increased plan participation. According to one sponsor, “the amount of disclosure today is appreciated by those who understand investing” and is “lost” on those who have difficulty understanding investment related concepts.

Finally, some sponsors expressed concern about increased government regulation of 401(k) plans, and the effect that increased regulation has on plan administration. One sponsor stated that while the government should provide the framework within which sponsors can help plan participants prepare for retirement, it should leave the details of plan administration and investment offerings to sponsors.