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advocacy community education
The 401(k) industry was once consid-
ered the last legal racket left because it
was an industry cloaked in fees, hidden
revenue-sharing payments, and con-
flicts of interest. For the bad players
out there, the lack of regulation on
401(k) fees was a good thing and all
good things must come to an end.
For those who work in the 401(k)
industry and believe in full fee trans-
parency to retirement plan sponsors
and participants, the last few years left
us waiting for regulations that would
require fee transparency. Finally, the
long wait is over. The Department of
Labor has promulgated regulations
that will require fee disclosure by plan
providers to plan sponsors in 2011 and
disclosure to plan participants in 2012.
It is hard to believe that 401(k) plans
have been around for almost 30 years
and, until 2011, there has been noth-
ing promulgated in law and/or regula-
tion that requires plan providers to let
their clients (plan sponsors) know
how much they are charging them for
plan administration.
The problem with that lack of disclo-
sure is that plan sponsors, as plan fidu-
ciaries, risked fiduciary liability by not
knowing the true cost of their plan's
administration and whether such fees
were reasonable when compared to
what was offered in the 401(k) market.
So what the plan sponsor didn't know
about their 401(k) fees could hurt them.
The fee disclosure (known as
) regulations that require dis-
closure to plan participants by July 16,
2011 apply to service providers for all
qualified retirement plans, including
401(k) plans. The following types of
retirement plan service providers who
directly contract with a retirement plan
and expect to receive $1,000 or more
in fees (directly or indirectly) are sub-
ject to the disclosure requirements:
Fiduciaries (service providers with
administrative discretion and/or
investment discretion)
Investment advisers (registered
investment advisers, whether or not
they are fiduciaries)
Recordkeepers and brokers (if the
recordkeeper or broker makes at
least one investment alternative
available as an investment option to
Other service providers (most other
service providers that expect to
receive indirect compensation or
related-party compensation).
The following must be disclosed by
these providers to the plan sponsors:
A description of the services provided
to the plan. The responsible plan fidu-
ciary must determine whether he or
she has enough information to con-
clude that fees are reasonable. If a
particular description lacks sufficient
detail, the plan sponsor is obligated
to request additional information.
A description of direct compensation,
which may be in aggregate or by
service and indirect compensation
the covered service provider reason-
ably expects to receive.
A description of any compensation
that will be "paid among related par-
ties," which includes bundled service
arrangements (typically with insur-
ance company providers) under
which a plan enters into a single con-
tract and pays for multiple services
Compensation paid among related
parties must be disclosed if it is set
on a transaction basis (e.g., commis-
sions, soft dollars, finders' fees, or
other fees based on business placed
or retained) or charged directly
against the covered plan's invest-
ment and reflected in the net value of
the investment (e.g., 12b-1 fees).
Retirement Plan Alert
Better Late Than Never: Retirement Plan Fee Disclosure
By David M. Snetro, AIF and Ary Rosenbaum, Esq.
1 References from 408(b)(2) regulations: Treas. Reg. 1.408b-2.