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Retirement Plan Fee Disclosure Regulations: Top Ten Steps Plan Sponsors Can Take To Meet the 401(k) Fee Disclosure Rules
February 8, 2012
By Jeff Robertson

The DOL issued Final Regulations last week putting into place the long awaited Fee Disclosure rules. The Fee Disclosure rules affirmatively require retirement Plan Sponsors to maintain a certain level of knowledge on the Plan's fees and expenses through disclosure from its Service Providers. These regulations are a precursor to the participant level disclosure which now goes into effect later this year.

  1. Understand Fee Disclosure is not new. The Fee Disclosure rules are another step in a long process that began with greater reporting on the Form 5500 in Schedules A and C, requirements under 404(a) to disclose administrative expenses affirmatively and mutual fund expense reporting requirements. Plan sponsors should consider these rules as another step in the process and not a dramatic or new requirement.
  2. Covered Service Providers must do the legwork. The regulations require Covered Service Providers to disclose to Responsible Plan Fiduciaries the information the fiduciary needs to assess the reasonableness of the fees, identify conflicts of interest, and satisfy reporting and disclosure requirements (such as the aforementioned 404(a) and Schedule A/C requirements).
  3. Responsible Plan Fiduciary is a narrow term but can catch the unwary. A responsible plan fiduciary is one who has the authority to enter, renew, or extend contracts with a Covered Service Provider. This may not include a member of an administrative committee who is otherwise a fiduciary but could include a company officer who is the general authorizing party on agreements with service providers.
  4. There is a Sample Guide to Initial Disclosures in the Regulations. It is a safe bet that most disclosures will in some form resemble the sample guide contained within the Final Regulations. Plan sponsors should review that sample guide to get familiar with what they will be receiving and request that the form from various providers look similar to allow fiduciaries to notice variances.
  5. Fiduciaries are only required to act if they believe disclosure has not occurred. The regulations require a fiduciary who believes the disclosure has not been made to affirmatively write to the Covered Service Provider requesting such disclosure and to take immediate steps to terminate the contract if the information is not provided. However, the regulations do not allow a fiduciary to avoid asking for disclosure and then avoid knowing whether it occurred.
  6. Compliance Deadline Dates get extended, so be careful of what you read. The current date for compliance is July 1, 2012, and the deadline for the 404(a) participant disclosure rules is now August 31, 2012. These dates may continue to get extended so watch for updated information.
  7. Determine the Covered Service Providers to the Plan and ask whether you know their fees. Chances are most service providers are starting to speak to retirement plan sponsors about the upcoming regulations. Responsible Plan Fiduciaries should list the administrator, recordkeeper, trustee, investment manager, and investment consultants and determine the last time they received disclosure on their fees and any revenue from the plan's investments.
  8. Amend Service Agreements to Require Affirmative Reporting and Indemnity. Service providers should be required via their service agreement, to the extent allowable under ERISA, to specifically warrant compliance with the fee disclosure regulations and provide indemnification to a plan sponsor or responsible plan fiduciary in the event such disclosure if found to have been noncompliant.
  9. Actually evaluate the fees. While the regulations do not affirmatively require a plan fiduciary to actually evaluate the reasonableness of the fees disclosed for the services provided, it is important for fiduciaries to actually use the information and evaluate their plans and structure for disclosure purposes at least once per year and comparatively every three to five years. Evaluation yearly means look at the service agreement and compare the fees. Evaluation every three to five years means actually receive bids or solicit benchmarks to evaluate fees and expenses.
  10. Make Disclosure Part of your Plan's Regular Meeting Minutes. The best action item for a Responsible Plan Fiduciary is to memorialize the disclosure and subsequent evaluation on a yearly basis at a meeting of the Plan's Fiduciaries.
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