Confusion Over Fee Disclosure Compliance

There are two sets of fee disclosure regulations that were issued by the U.S. Department of Labor Employee Benefits Security Administration (EBSA) in 2010.  This fact, and the movement of compliance deadlines for both sets, has contributed mightily to confusion amongst plan sponsors.  There are new requirements for disclosures to plan sponsors from covered service providers, and requirements for disclosures from plan sponsors to plan participants.  The overarching goal of the new disclosures is to improve transparency, ensure that the fees charged by service providers are reasonable (and thus don’t give rise to prohibited transactions and violations of fiduciary duty) and to provide participants that direct their own investments with the information necessary to make those decisions.

The disclosure requirements are somewhat extensive and won’t be detailed here, but it is worth noting that the extended deadlines are fast approaching.  Plan sponsors will need to obtain the required fee disclosures from covered service providers no later than April 1, 2012.  After that date, the disclosures must be received in advance of entering into new contracts with providers.

Disclosures to defined contribution plan participants will also begin in 2012.  Initial disclosures for new participants joining a plan, and for all participants as implementation phases in, must be ready by May 31, 2012 for a calendar year-end plan.  Quarterly disclosures to participants, which will show expenses paid from their accounts, need to be available by August 1, 2012. 

As this is uncharted territory for many, if not most, plan sponsors, we recommend that you be speaking to your service providers now about the information they are going to provide to you, and the assistance that they will offer in providing appropriate disclosures to participants.  You should come away from these conversations with a clear conviction that the service provider understands the new regulations and is prepared to adequately address them, and assist you in doing so.  As a fiduciary, you will have responsibility to receive and evaluate fee information, and make adequate disclosures to participants.  You will want to be sure that you are getting all the information you need to meet these fiduciary responsibilities.

Links to DOL Regulations:

DOL Reg. 2550.408b-2 – Disclosures to Plan Sponsors

DOL Reg. 2550.405a-5 – Fee Disclosures to Participants

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