DOL proposes 401(k) fee disclosure guide

Aims to assist plan sponsors understand costs after 2012 regulations pushed for more disclosure

Mar 11, 2014 @ 9:56 am

By Darla Mercado

Mandated retirement plan fee disclosures have become cumbersome enough for plan sponsors that the Labor Department wants to help.

On Tuesday, the DOL issued a proposal to provide employers additional guidance, amending its 2012 plan sponsor fee disclosure regulation. The original rule was aimed at providing plan sponsors with a breakdown of fees and services, as well as a determination on whether a given service provider was acting as a fiduciary. A second rule came out in 2012 that provided fee disclosure to plan participants.

The new proposal would require service providers to give plan fiduciaries a guide to help them review the fee disclosures if they're in “multiple or lengthy documents,” according to the proposal. The guide must identify the document where the required information is disclosed plus a page number or some other locator that would enable the fiduciary to find the information.

This guide isn't required for all service providers, but applies to those whose disclosures meet a certain threshold as far as length, according to Phyllis Borzi, assistant labor secretary and head of the Employee Benefits Security Administration. The guides themselves are expected to be one to two pages in length.

The big issue with the 2012 fee disclosure regulation is that it never stated a particular format for service providers to use when they shared the details with plan sponsors. As a result, the disclosures have been varied, and many are wordy and confusing to employers.

“Since the [plan fee disclosure] rule has been effective, we have collected disclosures and reviewed them,” Ms. Borzi said. She discussed the proposal in a conference call with journalists Tuesday morning.

“What we've seen is more than just a couple of lengthy complex disclosures,” she added. “Some are filled with legalese. Some have information that's split between multiple documents.”

Some providers have sent plan sponsors “bankers' boxes” full of these disclosures, Ms. Borzi added.

“We're troubled by this, and we're concerned that some fiduciaries are having a hard time locating the required fee disclosures,” she said.

Small retirement plans and their fiduciaries are a center of focus for this latest proposed regulation. DOL's EBSA will be working with a third-party contractor to organize focus groups to arrange eight to 10 sessions with 70 to 100 small plan fiduciaries to get direct feedback on their experience with the fee disclosures they've received from service providers.

“The primary beneficiaries [of the new rule] will be small and medium-sized plan sponsors — the same folks who have a hard time getting the information in an understandable format,” Ms. Borzi said, noting that those plans lack the bargaining power of larger plans.

Interested parties will have 90 days from Wednesday to submit comment on the proposed rule.

Retirement plan industry experts noted that the proposed regulation was a long time coming, having expected the release of a disclosure road map as far back as 2011.

“These contracts have gotten to the point where a normal person or a lawyer [specializing in the Employee Retirement Income Security Act of 1974] couldn't read them — things were buried,” said Marcia Wagner, managing director at The Wagner Law Group. “The way these contracts were being devised was frankly in contravention of what the intentions of the regulation were.”

As far as making the road map a part of the fee disclosure, if the regulation goes through, broker-dealers who work with retirement plans will have the most work ahead of them.

“Broker-dealers will have the most difficulty with this new proposal because many of them rely on prospectuses for this information,” said C. Frederick Reish, a partner in the employee benefits and executive compensation practice group at Drinker Biddle & Reath. “I'm not aware of any software in place that will allow them to cross-reference the pages or sections of the prospectuses.”

Broker-dealers have three courses of action: They could input the information into the guide manually, develop new software to automate the process or hire a third-party service to help streamline their disclosures, Mr. Reish said.

Compiling those guides won't be as onerous for third-party administrators and registered investment advisers who work with plans. Their disclosures tend to be brief as it is, said Mr. Reish.

“The RIAs tend to have all of their disclosures in their service agreements, and those are normally less than 10 pages,” he added. “TPAs have four- to five-page agreements that cover the disclosures.” Record keepers, meanwhile, have large volumes of information to disclose, but they devote the lion's share of their resources to retirement plans, while 401(k)s are only a portion of the business done at broker-dealers.

Some question whether greater specificity around the original fee disclosures could have prevented this problem in the first place. “In the smaller market, you have a less sophisticated buyer,” said Chad Parks, president of The Online 401(k), a service provider that works with small plans. “Many providers there are using broad ranges when it comes to the fees they charge.”

Standardization of the disclosures could be a possible solution. “They may need to dictate a standardized format so that the consumer knows what to look at and where,” Mr. Parks added.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

May 30


Adviser Compensation & Staffing Workshop

The InvestmentNews Research team will present exclusive data and highlights from its bellwether benchmarking study that will identify best practices for setting and structuring compensation and benefits packages throughout your... Learn more

Featured video


Why broker-dealers are on a roll

Deputy editor Bob Hordt and senior columnist Bruce Kelly discuss last year's bounce-back for IBDs.

Latest news & opinion

Things are looking up: IBDs soared in 2017

With revenue up, interest rates rising and regulation easing, IBDs are soaring.

SEC advice rule may give RIAs leg up over broker-dealers

Experts say advisers will be able to point to their role as fiduciaries as a differentiator in the advice market.

Brokers accept proposed SEC rule on who can call themselves an adviser

Some say the rule will clear up investor confusion, but others say the SEC didn't go far enough.

SEC advice rule: Here's what you need to know

We sifted through the nearly 1,000-page proposal and picked out some of the most important points.

Cadaret Grant acquired by private-equity-backed Atria

75-year-old owner Arthur Grant positions the IBD for the 'next 33 years.'


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print