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How Do I prepare our company's 401k plan for 2012 fee disclosures?

This year, Department of Labor, is requiring all 401k plan vendors to disclose all 401k fees to both the plan sponsor (APril 2012) and to participants later in the year (July 2012).

How does a plan sponsor (employer) prepare for these coming disclosures?

Jan 06, 2012 by David from Portland, OR in  |  Flag
6 Answers  |  9 Followers
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14 votes

What a great question! I wish more plan sponsors were asking this question as time is running out.

I'd say the first step is to make sure your provider, aka Recordkeeper, is prepared to send out statements that meet the DOL's recently finalized guidelines for fee disclosure. I am shocked that there are still service providers that don't have an answer or solution yet!

Next, understand there are 2 layers to the fee disclosure. In chronological order there is the responsibility of any "Covered Service Provider" (Recordkeeper, TPA, Advisor) to disclose their fees to you the Plan Sponsor.

Next is the responsibility for you the Plan Sponsor to disclose fees to your Participants. This is probably the most critical layer because most Plan Sponsors are completely unprepared to design statements for each employee that meet all the DOL guidelines. For this reason most of our clients are leaning on their Recordkeeper to send out these statements to the Participants. So if your Recordkeeper hasn't told you they are ready and will take care of both layers, you have very little time to find one who will.

This is an exercise we have taken all of our clients through and are familiar with those providers that are ready, and those that are not.

Comment   |  Flag   |  Feb 23, 2012 from Concord, CA

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7 votes

Recently 401k vendor Lincoln National set 'shockwaves' across the bow of this topic with this headline:

"Investors Will Scream When They See 401(k) Fees"

I discuss this topic and offer remedies to the fee disclosure matter, and how plan sponsors may prepare, in advance, of these disclosures found in this blog article:


1 Comment   |  Flag   |  Jan 06, 2012 from Portland, OR

David, are you speaking with many plan sponsors who are both aware of these changes and have a strategy of how to deal with it?

Flag |  Jan 06, 2012 near San Diego, CA

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6 votes
Allan Henriques Level 18

As a plan sponsor, the best way to prepare for the upcoming changes to 401(k) fee disclosures is to educate yourself about your company’s 401(k) plan now so that you can be sure you’re meeting your fiduciary duty and offering the best possible plan to your employees.

Currently, it’s difficult to cut through the verbiage obscuring the fees that plan participants pay for their 401(k)s. But that will change later this year when plan vendors will be required to disclose fees, and plan sponsors will be required to share that expense information with employees in an easy-to-understand format. Beginning July 1, you should receive disclosures regarding fees from your service providers; if you do not receive these disclosures, you should request them. After July 1, if your provider fails to provide the required information within 90 days, the DOL says that you should fire the provider.

The new fee disclosures will allow you to make easy comparisons between plans, which will really benefit you as a plan sponsor, since you have a fiduciary duty to pay only reasonable plan expenses. If plan providers stick to the DOL’s model for disclosing fees, plan sponsors and participants will be able to see data that’s comparable across plan providers. You could even drop the data into a spreadsheet for comparison or to test different scenarios. The format will also enable better comparison of investment options offered by a single provider.

This increased disclosure means that you and your employees will finally have a clear idea of what exactly you’re paying in fees. Of course, if employees learn they’re paying high fees and earning subpar returns, they’re likely to be upset. That makes this a good time for you to clean up your company’s 401(k) plan, so you can get ahead of possible employee outrage. One way to do that would be to be proactive and request cost information (in writing) from your service providers now, so that you can get a handle on what fees are being charged and prepare yourself for any questions you may receive from employees after July 1.

1 Comment   |  Flag   |  Feb 21, 2012 from Rocklin, CA

Alan makes a lot of solid points and I largely agree and support his comments. I thought I would underscore the importance in my opinion of getting in front of the issue of participant level fee disclosure. Depending on the level of sophistication of your participant base you may have quite a few participants who are under the impression that they have never paid any fees before and the new line items on their statement may look like a bill they've never had to pay before. I've seen material that suggests the percentage of participants who feel this way could be as high as 70%. We have been working with our client base on getting in front of this situation. If there are traditionally folks in the plan who are particularly interested or could be characterized as opinion leaders among the participants it might be to everyone's advantage to preview the fee disclosure to this smaller group. As they will have proper expectations at the time of the broad rollout you may find that their calm reaction to the conversation will signal to the less well informed participants that there is no reason to panic and that this is merely the uncovering of something that has always been there and that's how 401ks work.

Flag |  Mar 07, 2012 near Slingerlands, NY

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5 votes
James Holland Level 18

Plan Sponsors have been given a temporary reprieve so there is still time to be proactive. How do you prepare, the best answer is to partner with a ERISA qualified, un-conflicted independent professional to help assist you prepare the disclosures and help you best commuincate that to your participants

Comment   |  Flag   |  Mar 22, 2012 from Charlotte, NC

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Greetings Ryan, those who I speak with are mostly unaware of this pending legislation, and have not taken action, yet, to fully 'appreciate' the gravity of the disclosures..

2 Comments   |  Flag   |  Jan 06, 2012 from Portland, OR
James Holland

Plan Sponsors have been given a temporary reprieve so there is still time to be proactive. How do you prepare, the best answer is to partner with a ERISA qualified, un-conflicted independent professional to help assist you prepare the disclosures and help you best commuincate that to your participants.

Flag |  Feb 13, 2012 near Charlotte, NC

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Flag |  Jun 02, 2014 near Manhattan, NY

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2 votes

The deadline for 408(b)(2) is now passed. Most plans in the country have done almost nothing to actually comply with the regulation. According to the regulation, a plan sponsor is not only supposed to gather the pertinent fee, service and fiduciary disclosures from the plan providers. But the plan sponsor is also supposed to show that the fees are reasonable for the services provided. Very few plan sponsors have done anything to show reasonableness beyond taking the word of their service providers. In my opinion, and in opinion of the Department of Labor's own publication on the matter, a plan sponsor should engage in a request for proposal for plan services. This will give the plan sponsor the real market rate for their plan size and demographics. Simply comparing a plan to a national average does little to show what the market rate really is. That is the same as assuming a home valuation appraisal actually tells you what your house is worth. In order to really know, you have to put the house on the market.

The real horror for some regarding these new regs will come when 404(a)(5) kicks in. This is the rule that the plan sponsor has to disclose to the participants what they are actually paying for their plan. Most participants actually think the plan is cost free to them. They are going to be shocked. Unless the plan sponsor makes sure the fees are reasonable and then educates the participants, then the plan sponsor could be looking at disgruntled participants and possible complaints.

Comment   |  Flag   |  Jul 03, 2012 from Austin, TX

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