Retirement plan changes are coming that will impact both employers and employees! The goal of these changes is to provide employees with a better understanding of the fees they are charged on their retirement funds. A business owner sponsoring a company 401(k) or 403(b) retirement plan likely has already been contacted by the plan’s financial advisor. In December 2010, the Department of Labor (DOL) introduced regulation 408(b)(2) that changes how retirement plan fees are communicated to employees. These sweeping changes create many challenges for the business owner and its retirement plan. For calendar year plans, the effective date for the initial employee disclosure is August 30, 2012 (moved back from the original July 1, 2012 effective date).
Will your company be ready to comply with the new participant fee disclosure rules?
Does the business have a clear understanding of how it the plan’s participants will be impacted by the new requirements? Is there a plan of action for complying in a timely manner? If you are unaware of these pending changes, rest assured you’re not alone. Employers, plan administrators and record-keepers are struggling to come to terms with the new regulations and communication requirements.
The buisness owner also needs to consider what impact the final disclosure regulations will have on the plan sponsor.
Under ERISA, employers have certain fiduciary duties, including ensuring that its arrangements with service providers are reasonable and that the fees paid for those services are reasonable. The service provider disclosure regulations are designed to provide the business owner the information needed to satisfy this duty.
Below are some important steps the business needs to address to comply with the regulations:
- Develop a process for collecting and analyzing service provider disclosures. You will want to ensure that you have assigned clear responsibility internally for performing this important duty. Your process should include identifying the covered service providers and making certain you receive the necessary information. Assessing the reasonableness of their fees may involve comparing fees charged by other service providers for comparable services. It is important to understand that fees are one element of service provider selection, not the only factor to consider.
- Document the steps you take to fulfill your responsibilities.
Participant fee disclosure requirements are also scheduled to become effective in 2012. The effective date of the participant disclosures has been pushed back as a result of the delayed July 1 effective date for service provider disclosures. The initial annual disclosure is now due to participants August 30, 2012 and the first quarterly disclosure is due November 14, 2012.
The company’s retirement financial advisor should be helping it meet its responsibilities through their 401(k) process which could include educational programs and providing tools for collecting and comparing fee information.
The disclosure of fees paid will provide employees with additional information to better determine which investment funds within their employer’s retirement plan best meet their needs.
The author wishes to thank Geoffrey F. Forcino, AIF®, a partner with the The Philadelphia Group located in King of Prussia, for his contributions to this article.