What Retirement Plan Sponsors Need To Do About The New Fee Disclosure Regulations


I occasionally joke that the retirement plan industry is the last legal racket left. It is an industry that regulates behavior that could be considered illegal in other industries. What is considered revenue sharing payments that some mutual funds funnel to third party administration (TPA) firms to defray the administrative costs of 401(k) plans that used those funds could be considered in another industry an illegal kickback, a bribe, or was considered payola in the music industry. It is one of the few industries where professional service providers weren’t legally required to inform their clients of how much they were receiving in fees. The problem is that while retirement plan providers weren’t legally required to tell plan sponsors how much money they were reaping in fees, it was the plan sponsor’s fiduciary duty to make sure that they were only paying reasonable plan expenses, which is impossible if they couldn’t determine how much they were paying, especially when some providers were perpetuating the myth of free plan administration.

With fee disclosure regulations to be finally implemented by the Department of Labor in 2012 (at press time, April 1, 2012), plan sponsors will finally get a disclosure of all fees that their retirement plan providers received directly or indirectly. While fee disclosure regulations have been on the mind of retirement plan providers such as TPAs, financial advisors, insurance companies, mutual fund companies, and ERISA attorneys for years, no one has bothered to tell plan sponsors what fee disclosure will mean to them. Retirement plan fee disclosure under the 408(b)(2) regulations isn’t just about the revealing of the retail price for plan administration like Drew Carey does on the Price is Right, plan sponsors will have important duties under the regulations to fulfill. By neglecting these duties, plan sponsors could face penalties and sanction from the DOL, as well as increased liability from litigation by plan participants. As with most things in the retirement plan industry, plan sponsors are the last to know what their duties and potential liability are. Hopefully, this article will help plan sponsors understand fee disclosure and what they need to do about it in order to minimize their liability as plan fiduciaries.

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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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