Thursday, December 18th, 2014

The Obameter

Require full disclosure of company pension investments to employees


"When companies fund their pensions, many do not disclose their investments with the employee's pension dollars. This lack of transparency can make it easier for fund managers to make imprudent or even fraudulent investment decisions. Obama will ensure that all employees who have company pensions receive annual disclosures about their pension fund's investments, including full details about which projects have been invested in, the performance of those investments and appropriate details about probable future investments strategies."


Updates

No new pension investments disclosures required for participants, but transparency improves on other fronts

When President Barack Obama pledged greater transparency for participants in private pension plans, he specified that companies should disclose to participants where their money is invested.

We find no evidence of that level of disclosure, detailing to participants specific companies and holdings and how investments are performing.

However, new rules enacted during Obama's term bring a greater degree of transparency in other ways.

Most significantly, new Department of Labor rules known as the 408(b)(2) disclosures require service providers -- investment companies such as Vanguard or Fidelity -- to disclose to pension plan fiduciaries the fees they charge, any conflicts of interest and all information required by existing law. There are also new, separate disclosure requirements for participants in defined contribution 401(k) plans.

The fiduciary is charged with overseeing the plan and acting on behalf of its participants. The new rules then "ensure that responsible plan fiduciaries are provided the information they need to make better decisions when selecting and monitoring service providers for their plans.”

We spoke with Ted Godbout, communications manager for the ERISA Industry Committee, a Washington organization that works in the interests of companies covered by private pension law. He said that disclosures to fiduciaries are what matter in the private pension world because that's who oversees investment decisions, not plan participants.

"They're the ones responsible for the plan itself,” Godbout said.

But participants already receive an array of annual disclosures about their pensions, including how the funds are allocated (in mutual funds, cash accounts, etc.), if there are any major changes to the fund and the percent at which it is funded.

"There are a lot of disclosure requirements that are already out there,” Godbout said.

Still, while new regulations advance the overall goal of greater transparency, Obama has not met his pledge to "ensure that all employees who have company pensions receive annual disclosures about their pension fund's investments.” We rate this a Promise Broken.

Sources:

Email and phone interview with Ted Godbout, communications manager for the ERISA Industry Committee, Dec. 7, 2012

Department of Labor, Fact Sheet: Final Regulation Relating to Service Provider Disclosures Under Section 408(b)(2), February 2012

Department of Labor, Compliance Guides for Retirement Plans, accessed Dec. 7, 2012

Washington Post, "Proposals broaden 401(k) payout options,” Feb. 3, 2012, via Nexis

Department of Labor conducting review of pension rules

When we went looking for evidence of action on this promise, we didn't find much. So we asked the Department of Labor about it. A spokeswoman said the promise had not been fulfilled, but she pointed to several new reviews of pension regulations aimed at increasing transparency, particularly disclosure of fees to pension service providers.

Those reviews need to be completed before this particular change is acted upon, she said.

We'll continue to monitor this issue. It's a close call, because officials admit this particular promise hasn't been addressed. But given the ongoing reviews of other transparency issues, we're willing to rate this promise In the Works for now.

Sources:

Department of Labor, Semiannual Agenda of Regulations, Dec. 7, 2009

Interview with Gloria Della of the U.S. Department of Labor

U.S. Department of Labor, Fact sheet on Service Provider Disclosure to Plan Fiduciaries