This is indeed a lively discussion. I just want to correct one misimpression that your latest blog entry repeats.

ICI has been leading the charge for better disclosure in participant-directed retirement plans—and we’ve been out in front for more than 30 years.

In 1976–at the very dawn of the ERISA era–the Institute advocated “complete, up-to-date information about plan investment options” for all participants in self-directed plans. (Our ICI forebears couldn’t have referred to 401(k) plans at the time, because Internal Revenue Code Section 401(k) was still two years in the future.)

Since 1987, we have called upon the Labor Department to require all 401(k) investment products to give participants the same level of disclosure that ERISA and the securities laws require of mutual funds.

More than two decades later, mutual funds still have the most rigorous and complete disclosure of all 401(k) investment options. Indeed, the great irony of this debate is that the criticisms lodged against 401(k) fees usually rely on mutual funds’ disclosure and ICI data–because comparable disclosure and data simply aren’t available on the other products.

Take, for example, trading costs. Clearly, BrightScope doesn’t agree with ICI (or the Securities and Exchange Commission) on the hazards and inaccuracies of trying to reduce trading costs to basis-point estimates. But your own paper on your “transaction cost algorithm” demonstrates that mutual funds already report substantial information that plan fiduciaries can apply to compare the trading activity of different investment options and assess how that activity is likely to affect participants’ returns. Mutual funds also report their performance in a standard form that is net of all trading costs–so the returns you see are the returns you got.

We are still leading the charge. In January 2007, the ICI Board of Governors passed a detailed resolution calling for better disclosure for both plan sponsors and participants. It said that “participants in all self-directed plans [should] receive simple, straightforward explanations about each of the investment options available to them, including information on fees and expenses,” and enumerated the five key pieces of information that participants need about every investment option: “investment objective, principal risks, annual fees (expressed in a ratio or fee table), historical performance, and the investment adviser that manages the product’s investments.” (The Board resolution and a history of ICI’s disclosure efforts can be found at http://www.ici.org/pdf/ppr_07_ret_disclosure_stmt.pdf.)

Since then, ICI has been a vigorous supporter of the Department of Labor’s three disclosure initiatives, and has played a leading role in coalitions of employers and service providers offering principles, model disclosures, and comments on the DOL proposals. Our advocacy is based in our extensive research showing how investors make their decisions and the information that they are most likely to need and use.

Today, we are actively engaged with a number of members of Congress who are considering legislation on 401(k) disclosure. In February, ICI’s president and CEO, Paul Stevens, testified before Chairman Miller and the House Education and Labor Committee in favor of 401(k) reforms, including “simple, straightforward disclosure focused on the key information that allows comparisons among the investment options available in their plan” (http://www.ici.org/statements/tmny/09_house_401k_tmny.html#P108_24044).

If Congress chooses to legislate in this area, lawmakers will have a once-in-a-generation opportunity to get it right. The right disclosure will be tailored to meet the specific (and different) needs of sponsors and participants.

For participants, disclosure must be clear, concise, and useful, without information overload. As Stevens testified, “Voluminous and detailed disclosure will not serve the interests of participants, whose primary decisions are whether to participate in the plan (and at what level) and how to allocate their accounts among the options the plan sponsor has selected. The best disclosure approach is one that is layered to deliver the right level of information based on participants’ actual needs.”

ICI will continue to work with members of Congress and regulators to ensure that 401(k) participants get the information that they want, need, and can use to make better decisions to enhance their retirement security. After 33 years, we’re not about to give up.

Thanks again for the opportunity to set the record straight.

— Mike McNamee
Senior Director, Public Communications
Investment Company Institute