Labor Dept. seeks better disclosure of 401(k) fees

Such differences can have a huge impact during an employee's career. A 1 percentage point difference in annual fees can reduce a worker's retirement savings by 17 percent over 20 years, the Government Accountability Office has estimated.

The Labor Department rule also would require employers to provide average annual returns for each investment option and compare those returns to a benchmark, such as the S&P 500 index.

Employees have placed about $2.5 trillion in defined contribution plans, and a study last month by the consulting firm McKinsey & Co. estimates that figure could grow to $8.5 trillion by 2015.

Despite the widespread use of 401(k) plans, most workers still don't know the fees they pay or their impact on savings. Roughly 80 percent of participants don't know how much they pay in fees, according to the GAO, the investigative arm of Congress.

Christian Weller, a senior fellow at the Center for American Progress, said the Labor Department's rule should require additional information to give employees more context about fees.

Employers should compare the fees charged by investment providers to an average for each type of investment, and should be required to provide model calculations of what an investment would cost over the long term, Weller said.

"Most consumers have very little way of assessing the overall impact" of fees on their long-term savings, he said.

But the Securities Industry and Financial Markets Association, an industry trade group, praised the department's proposal as "an excellent starting point" that provides investors useful information "without overwhelming them."

SIFMA's members include Merrill Lynch & Co. Inc., Bank of America Corp.'s securities division, and T. Rowe Price Group Inc.

Tuesday's proposal is part of a larger effort by the Labor Department to improve fee disclosures. The Bush administration late last year issued a separate rule requiring investment companies to disclose the compensation and fees they receive to employers, and also has required employers to file more information about their plans with government agencies.