Employee Benefits Advisory: Department of Labor Issues Guidance on 401(k) Plan Fees


On December 13, 2007, the U.S. Department of Labor issued its long-awaited proposed rule on the subject of 401(k) fee disclosures. The Department issued this rule against a backdrop of increased Congressional attention and media scrutiny, and it is likely to be contentious. This advisory explains the key features of the proposed rule.

Entitled “Proposed Regulation Relating to Service Provider Disclosures Under ERISA Section 408(b)(2),” the newly proposed rule follows on the heels of a solicitation by the Department for comments from interested parties relating to what levels of disclosure might be appropriate. The responses to the Department’s solicitation were voluminous and fell into two, predictable camps:

The financial services industry favored a light regulatory touch, arguing that the greater the level of detail, the greater the cost to participants. In their view, as long as a mutual fund load or expense ratio discloses in the aggregate the amount that the participant can expect to be charged, that amount ought not to be further broken down by amounts paid to the various other vendors and service providers.

In the other camp is consumer groups, who urged a far more explicit and detailed rule. They argue that participants have a right to know exactly how their money is being spent.

While the proposed rule appears at first blush to favor the financial services industry, a closer reading reveals that this is not the case. The proposed rule is in the form of an amendment to the so-called “service provider” exemption from the ERISA prohibited transaction rules. In addition to imposing stringent fiduciary standards, ERISA identifies certain transactions that are barred under all circumstances absent an express statutory or regulatory exemption.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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