Monday, July 22, 2013

Fee Disclosures

Annual Disclosure to Plan Participants
  • This is the plan sponsor’s obligation, not the record keeper’s obligation. 
  • Distributed to all eligible employees whether they are participating in a plan or not; covers administrative expenses and fees that apply on an individual basis (loans, qualified domestic relation orders, brokerage windows, etc.). 
  • Includes the investment-related disclosures, such as performance data and benchmarks.

Multi-Vendor ERISA Plans
Multi-vendor ERISA plans are common in a not-for-profit market. A recent Department of Labor (DOL) Field Assistance Bulletin stated for plans with multiple vendors, the disclosure must be “householded” or put in one envelope and distributed to plan participants. It is permissible for a plan sponsor to take the participant data from vendor A and from vendor B and paperclip them together in the same envelope. A better approach occurs when vendor A agrees to handle the mailing with data input from vendor B. DOL offers some relief: you do not have to include vendors to which you ceased making contributions before 2009.

Quarterly Disclosure to Plan Participants
The quarterly participant disclosure statement shows the actual plan expenses on a quarterly basis for plan participants. If your plan is set up to withdraw money out of participant accounts, that is going to be apparent on these statements.

Fee Disclosure Enhancements
(408(b)(2) reg: disclosures that all covered service providers have to make to the plan

Covering: Any ERISA plan where the participant is directing the investment—ERISA 403(b), 401(k), 401(a) Profit Sharing or Money Purchase. It does not yet cover, by the way, health and welfare plan

New Internal Revenue Service (IRS) rules are intended to help the plan sponsor evaluate the reasonableness of services arrangements to avoid prohibited transactions. As long as the contract is reasonable, the services are appropriate, and the compensation is reasonable, you qualify under section 408(b)(2). DOL defines a covered service provider as anybody who expects to receive $1,000 or more in compensation in a plan year. So that could be the advisor, the retirement advisor, the investment advisor, the record keeper, any legal counsel, the trustee, custodian, broker, auditor, etc.

Fee Disclosure Enhancements
(404(a)(5) reg: disclosures from the plan to each plan participant)

Covering: 404(a)(5) Plans

DOL believes plan participants are being overcharged in the tune of about $15 billion per year. New DOL rules provides that when a plan allocates investment responsibilities to participants or beneficiaries, the plan administrator must take steps to ensure that such participants and beneficiaries, on a regular and periodic basis, are made aware of their rights and responsibilities with respect to the investment of assets, investment options, and fee and expense information, to make informed decisions with regard to the management of their individual accounts.

DOL’s stated goal in issuing 404(a)(5) disclosure regulations is to reduce the fees and expenses charged to plan participants by $14.9 billion, in addition to a $2 billion cost of complying. The irony is that most plan participants do not even know that they are paying administrative fees. According to a recent AARP study, 77% of all 401(k) participants said they do not pay any fees to the retirement program. A survey from Dimensional Fund Advisors, a mutual fund company, states that 23% of plan sponsors believed that their retirement plan services were free.

If you have any questions about fee disclosures, or would like to begin talking to a retirement plan advisor, please get in touch by calling (855) 882-9177 or e-mail us at sbs@hanys.org.