Myth: H.R. 1984 will require too much disclosure and will confuse 401(k) participants.
Myth: Fees on 401(k)s are already adequately disclosed.
Fact: H.R. 1984 would require clear and simple fee disclosure so that workers can make sound investment decisions for themselves. The biggest problem currently facing workers with 401(k) plans is that there is too little disclosure of fees, not too much. Plan participants should be presented with the facts and then be allowed to make their own decisions.
Myth: Fees on 401(k)s are already adequately disclosed.
Fact: There is no one place that 401(k) plan participants can go to find out about the fees they are paying. Information that is available is difficult to find and difficult to read. As a result, a 2007 survey by the AARP found that roughly 80 percent of plan participants were not aware how much in fees were taken out of their 401(k)s.
Myth: More fee disclosure will dramatically increase costs to plan participants.
Myth: H.R. 1984 mandates one investment option for every 401(k) plan.
Myth: Actively managed investments provide better returns than index funds.
Myth: Service providers that “bundle” their services will be required to unbundle them.
Fact: While there may be a small initial cost, continuing to hide fees that workers pay to Wall Street middle men puts Americans’ retirement security at risk. These Wall Street firms should have to tell their customers how much they charge for their services. And giving the consumer better information will encourage greater competition among financial service providers and help reduce fees.
Myth: H.R. 1984 mandates one investment option for every 401(k) plan.
Fact: H.R. 1984 would simply require 401(k) plans that want limited liability against investment losses to offer at least one index fund. It does not limit other types of investment options that 401(k) plans may offer; it does not tell 401(k) plans which specific index funds they must offer; and it does not require plan participants to invest in index funds. It simply ensures that participants are able to invest in an index fund if they choose to do so.
Myth: Actively managed investments provide better returns than index funds.
Fact: Over the full twenty-year time period from 1983 to 2003, depending on the sector, index funds outperformed 89 percent to 97 percent of all mutual funds. Index funds are not actively managed and therefore carry lower costs. While many 401(k) plans have made strides to include lower cost retirement options, index funds are still not available in 30 percent of 401(k) plans.
Myth: Service providers that “bundle” their services will be required to unbundle them.
Fact: H.R. 1984 does not require service providers to unbundle their services. If a service provider sells investment management services, administrative services, and record-keeping together as a package, it may continue to do so. H.R. 1984 simply requires service providers to disclose the costs of the components of its bundled products.
