This week, Congress is taking up a relatively simple set of changes to how 401(k) plans work. And yet again, the Investment Company Institute picks the wrong side of the fight—the side of active management.

Back in 1999, I stood in front of an ICI meeting arguing for increases in portfolio disclosure requirements. At the time, it was hard to imagine the 10-year boom we've seen in ETF assets, and the increasing willingness of alpha-seeking managers to make daily disclosures of their portfolios. I was called naïve and foolish, and perhaps I was.

Yesterday, the Committee on Education & Labor kicked a bill (full text) for consideration down to Congress that feels awfully similar—it would require a boatload more disclosure of what really goes on inside 401(k) plans, and mandate the inclusion of at least one passively managed option for participants. (The bill's full name is the Fair Disclosure and Pension Security Act of 2009.)

Here's what the ICI said in their entirely rational press release, which is what the mainstream press will pick up:

"The bill fails to define clearly the vital disclosures investors need, while layering on unnecessary and potentially inaccurate information that will only confuse employers and workers. The proposed legislation also sets a dangerous precedent by giving Congress the job of selecting investment options for plans."

But let's get into the meat. What did the ICI really object to? Well, in their letter to the committee, they had two big issues. The first was that there was TOO MUCH disclosure required:

"… accountants, valuation service providers, printers, and custodians who have no direct relationship with a plan could suddenly be subjected to detailed fee disclosure as a result of having provided services to investments used in a 401(k) plan. Disclosure focusing on those relationships, rather than the aggregate costs of an investment option, will needlessly complicate the information received by plan sponsors and participants, and create needless additional costs ultimately borne by 401(k) plans."

Oh yes, by all means. Please protect me from all this detailed information, ICI. After all, I don't really need to know how much "mere" service providers like custodians are making off my 401(k) plan. Is it "needlessly complicated" when my car mechanic breaks out parts from labor, so I can see where he's gouging me?

The Real (Raw) Deal

What they're really objecting to is the devil’s handshake that big active mutual fund shops have made with mid-sized 401(k) sponsors for decades: We'll give you your 401(k) services for "free" and we'll just pay for it out of all the little basis point fees nobody ever looks at in the underlying funds’ expense ratios.

The second objection was about this draconian sounding “giving Congress the job of selecting investment options" bit.

Surely that has to be terrible right? Lord knows I don't want to hand my retirement over to a bunch of politicians. But here's what the ICI really said to the committee:

“H.R. 2989 sets a dangerous precedent by effectively requiring plans to include an indexed investment option meeting specific requirements. It is inappropriate for the government to pick investment options for private 401(k) plans."

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