New Fee Disclosure Requirements

Bryan S. Simmons

Retirement Services Consultant

bsimmons@davidmartinagency.com

bsimmons@davidmartinagency.com

davidmartinagency.com

Topic: Accounting

In my profession, I usually am asked the same two questions again and again; “is my retirement plan costing us too much?” usually followed by “how do I determine what fees are reasonable?”

My professional advice?  Plan Sponsors have a fiduciary obligation to make sure plan fees are reasonable and the plan is operating in the best interest of participants.   The best way to determine “reasonableness” of fees is to benchmark your total plan costs against plans of similar size in terms of assets and participants. 

However, with lack of fee disclosure regulation, gathering and uncovering total plan costs from plan providers can and has been a daunting and time consuming challenge.  In many cases, complete fee disclosure from plan providers has been semi-transparent.  As such, Plan Sponsors can be unaware of the many “hidden” fees that impact participant accounts and total plan costs.   

In July, the Department of Labor (DOL) released interim final regulations to help Plan Sponsors better determine total plan costs.  With the issuance of these interim final regulations, the DOL has amended section 408(b)(2) of ERISA to clarify disclosure requirements for plan providers.

These regulations will establish the ground rules for plan providers to follow in terms of who must provide disclosures, how frequently fee disclosures are to be made as well as services performed in relation to fees being received, including revenue sharing offsets and other “hidden” fees that were difficult to decipher in the past.  With full fee disclosure, Plan Sponsors will now be able to make informed and educated decisions when it comes to monitoring plan costs and the associated services received from plan providers.

Whatever the outcome, fee transparency and disclosure is much needed and new regulations will go a long way to helping Plan Sponsors assess the cost structure and overall effectiveness of the plan.