Galvin Asks Congress to Force 401(k) Plan Disclosures
Massachusetts’ chief securities regulator called on Congress and the U.S. Department of Labor to force companies to disclose any changes to the timing of 401(k) plan contributions to workers.
“Employees should be told the potential risks involved in a significant change, such as a shift to a year-end annual employer match,” Secretary William F. Galvin said today in a statement. “They should be told before the change occurs.”
Companies across industries are squeezing 401(k) contributions by holding back on the amount and timing of their matching funds to employees, making it harder for U.S. workers to save for retirement, Bloomberg News reported in February. If employers make matching contributions at the end of the year, employees miss out on gains that could accrue during the year. Some workers may also lose out if they leave the company before year-end.
Galvin’s unit sent letters earlier this year to 28 of the largest providers of 401(k) plans, requesting the number of employers who pay distributions at year-end, when the move was made from more frequent payroll periods and what workers are told about the potential consequences.
Galvin said his unit was unable to obtain data from service providers who said they were bound by contracts with employers or would not provide the information without a subpoena.
A move by AOL Inc. (AOL) in February called attention to employers who pay their matching contribution once a year, when Chief Executive Officer Tim Armstrong announced plans to make payments in one sum at the end of the year after citing spiraling health-care costs. The announcement sparked a controversy, and within days, Armstrong apologized and the company reversed its decision.
Galvin in a report today recommended rules requiring companies to tell workers about changes to their 401(k) plans in advance and about the potential costs. While employers have to provide a summary to the Labor Department and participants of a material modification to their retirement plan, federal law doesn’t require them to disclose the financial risk of a shift to a lump-sum matching contribution, according to Galvin’s statement.
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