401(k) providers brace for new fee disclosure regs

May 19, 2010 @ 4:11 pm

By Darla Mercado

As one 401(k) provider rolls out enhanced fee disclosures for plans, rivals are keeping a close watch on upcoming regulations that will likely require them to follow suit.

Putnam Investments announced on Wednesday that beginning next month it will disclose all fees charged to plans — including investment management, servicing and advisory fees, as well as those for record keeping. The disclosures would be available online, as opposed to being distributed annually or at the plan sponsor's request.

The disclosures will include fees that sometimes escape notice, such 12(b)-1 fees and revenue-sharing agreements, said Edmund F. Murphy, managing director and head of defined contribution at Putnam.

“You'd like to think advisers and consultants were disclosing those fees,” he said of the 12(b)-1s and revenue-sharing fees. “Whether it's fee for service or commission-based, we reflect that on the plan sponsor portal.”

Putnam has been banging the drum for fee transparency for a while now. Last year, the fund firm's chief executive, Bob Reynolds, issued a series of regulatory and legislative suggestions for the retirement business. “People don't always know what they're paying,” Mr. Reynolds said. “What we're trying to do here is make the system better through disclosure.”

Putnam has upped its disclosures ahead of potential government action. The House is considering a tax bill that may include a provision on 401(k) fee disclosure championed by Rep. George Miller (D-Calif.). Mr. Miller is also chairman of the House Committee on Labor and Education.

Meanwhile, the Labor Department is prepping new regulations that are widely expected to require increased fee disclosure from service providers as well as registered representatives and advisers who work with plan sponsors. At the moment, the department plans on rolling out the changes this summer.

It's doubtful other fund firms will mimic Putnam's move and act ahead of new federal mandates. But executives at some fund firms say they've been watching the DOL closely for cues on what those requirements might be.

“While we're already providing a great deal of disclosure, we've had a team working on preparations for any necessary changes that the DOL sees fit,” said Linda S. Wolohan, a spokeswoman for The Vanguard Group Inc. The index fund specialist has been providing plan sponsors an annual fee report that details the expenses and then presents a total expense ratio.

Likewise, Fidelity Investments has been following the fee disclosure matter for more than a year, said Beth McHugh, vice president of market insights at Fidelity. Ms. McHugh said the company has established an internal team to assess the regulation's impact. She noted that the fund firm would like to automate more of its disclosure processes, but added that she believed that Fidelity was prepared to follow the rules.

Despite the advance work of many firms, some may fall short in several areas of disclosure, said Marcia Wagner, managing director of The Wagner Law Group, an ERISA specialist. Ms. Wagner pointed to disclosure of revenue sharing as one worry. Other problem areas: commissions on brokerage and the amount of “float” revenue derived from assets held by custodians in interest-bearing accounts prior to distribution.

Questions still remain on the exact level of detail the Labor Department will seek. Revenue sharing, for instance, will need to be disclosed in full, but it remains unclear whether the information will have to be broken out to show the amount that goes to a third-party administrator and other parties.

“Are there other vendors ready to disclose that information?” Ms. Wagner asked. “That's the open question.”

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