Roundup of Recent 401(k) Developments

Posted on December 4, 2009

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There has been a lot of interesting 401(k) related news over the past week. Below are some highlights.

Fees to be scrutinized – A lawsuit against Wal-Mart alleging that the retail giant violated its fiduciary responsibilities by offering employees mutual funds that charged excessive fees was given “new life,” reports InvestmentNews. Dismissed by a lower court a year ago, an appeals court recently reversed that decision, and has sent the case back to the lower court. According to the article:

The court’s decision to send this case back to the lower court is significant, particularly given the size of Wal-Mart’s 401(k) plan, which has about $10 billion in assets, experts said. The court’s decision also gives hope to plaintiffs in other 401(k) fee cases, said Greg Ash, head of the Employee Retirement Income Security Act litigation group at Spencer Fane Britt & Browne LLP.

Balances Bouncing Back – Vanguard reports that “the typical 401(k) participant now has greater 401(k) retirement wealth than before the severe market downturn.” While that sounds pretty exciting, it’s important to note that the primary reason for this development is the fact that most 401(k) participants continued to contribute to their plans during the downturn. So while improving market conditions have certainly helped, it has been ongoing contributions that have been key to increasing account balances.

Getting Money Out of Your 401(k) InvestmentNews reports that the Labor and Treasury departments are “discussing jointly submitting a request for comment from members of the retirement income industry to determine if there needs to be regulation of the market.” The article goes on to state that “ . . . the Labor Department and Treasury want to get a better sense of how products like annuities can be used within 401(k) plans in a seamless manner.”

And, finally, speaking of annuities, three lawmakers have introduced legislation in the Senate that would require DC plan sponsors to provide participants estimates of how much income they could expect to receive at retirement assuming that their current account balances were converted to an annuity. According to a press release on the Web site of New Mexico Senator Jeff Bingaman, one of the bill’s co-sponsors:

The . . . Lifetime Income Disclosure Act would require 401(k) plan sponsors to inform participating workers of the projected monthly income they could expect at retirement based on their current account balance. The measure is patterned on the Social Security Administration’s annual statements, which are mailed annually to working Americans to inform them of estimated monthly benefits based on their current earnings. Congress mandated annual Social Security statements in 1989, and they have proven to be very useful to workers in preparing for retirement.

By providing similar information for 401(k) plans, the Lifetime Income Disclosure Act would give American workers a more complete snapshot of their projected income in retirement.