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Benefit plan performance and fees
New Regulations Issued for Retirement Plan Fee Disclosure Rules
The Department of Labor (DOL) recently issued final rules that make the fees associated with retirement plans more transparent. The Employee Benefit Security Administration (EBSA) will start enforcing the new rules at the plan and participant levels on July 1, 2012, and August 30, 2012, respectively.
Under the new policy, record keepers, investment advisors, accountants, lawyers, and other service providers of employee benefits must disclose specific information to the benefit plan fiduciary, if the service provider expects to receive $1,000 or more in compensation. The disclosures must be made in writing, and it is suggested (but not required) that service providers offer a guide or summary of the disclosures.
The EBSA issued the interim final regulation on July 15, 2010. The original compliance deadline was July 16, 2011, but has been extended numerous times to give providers more time to comply.
The initial plan-level fee disclosure deadline triggered other types of disclosure deadlines to be extended:
|Disclosure Item||Initial Date||Final Date|
|Plan-level fee disclosure||April 1, 2012||July 1, 2012|
|Participant-level fee disclosure||May 31, 2012||August 30, 2012|
|First quarterly statement under new rule||August 14, 2012||November 14, 2012|
“Businesses should take steps now to prepare for the new regulations, so they can avoid being charged excise taxes,” says Anita Baker, employee benefit plans managing partner at CliftonLarsonAllen. “Now that the new rules have been released, the effective date will likely not be extended again.”
Changes between interim and final rules
Although the final and interim rules are similar, there are a few updates in the final rules, including:
- A separate provision for the disclosure of investment-related changes
- An exclusion for certain Internal Revenue Code section 403(b) annuity contracts and custodial accounts
- An expansion of the amount of information that must be disclosed for a service provider’s indirect compensation
The regulations affect the Employee Retirement Income Security Act of 1974 (ERISA), which states that benefit plan fiduciaries must:
- Act solely in the interest of plan participants and beneficiaries.
- Ensure that plan assets are being used exclusively for the payment of plan benefits or for defraying “reasonable” administrative expenses.
- Offer “reasonable” fees for services between a plan and a “party in interest” (i.e. a plan trustee, investment advisor, record keeper, or consultant).
The new requirements were created to provide more transparency on the fees paid by a qualified retirement plan’s participants and to more clearly define reasonable fees and expenses.
Preparing for the new regulations
“We are navigating through unchartered times with fee regulation and fiduciary liability in the world of 401(k) plans and 403(b) plans. A plan sponsor must understand all fees relating to recordkeeping, administration, investments, and advisory. Plan trustees are personally liable, and should know how to mitigate that liability,” says Rohi Batra, a senior wealth advisor with CliftonLarsonAllen Wealth Advisors LLP.
Baker and Batra recommend that plan sponsors take the following steps to prepare:
- Request a benchmarking analysis of investment fees and expenses paid by the plan, like this sample report. “For many plan sponsors, the disclosure of what the plan is actually paying in expenses will be an eye opener. The benchmarking analysis will prepare you for an informed discussion of investment fees with your service provider when they provide you with the required disclosures this year,” Baker says.
- Determine whether the fees are “reasonable” based on the comparison with established benchmarks.
- Discuss the analysis with your investment advisor or consultant.
How we can help
Contact your benefits coordinators to assure you are in compliance by the deadline. They’ll help you understand the fiduciary responsibility under ERISA and the risk a business may have related to your plan.