Small retirement plan fiduciaries drowning in new fee disclosures

Documents are way too long, information is split up among multiple documents, and the legalese is mystifying

Mar 13, 2014 @ 12:01 am

By Darla Mercado

Retirement plans, fiduciaries, Labor Department, plan advisers
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As the Labor Department prepares to ask small retirement plan fiduciaries about their experience with fee disclosures, advisers are confirming one of the agency's major suspicions: They are still too long.

Earlier this week, the Labor Department proposed a new regulation that would require service providers to give plan fiduciaries a guide to help them navigate mandated plan fee disclosures, provided those disclosures are in multiple or lengthy documents. It's an addendum to a 2012 rule that required retirement service providers to spell out their fees to plan sponsors and fiduciaries. A similar rule that went into effect that year also provided plan participants with fee disclosures.

DOL also announced it will conduct focus groups of small retirement plan fiduciaries to ask them about the mandated plan fee disclosures they've been receiving: Are they able to find information regarding the services? Do they understand the disclosures? Do their service providers furnish a guide to help them find specific information in the disclosures?

In theory, the DOL's fee disclosure regulation is supposed to clarify much of the mystery around the duties and fees of service providers in a given retirement plan. In practice, service providers are giving plan sponsors the information, but much of it is buried.

“What we've seen is more than just a couple of lengthy, complex disclosures,” Phyllis Borzi, assistant labor secretary for the Employee Benefit Security Administration, said on a call with reporters on Tuesday. “Some are filled with legalese,” she added. “Some have information that's split between multiple documents.”

When DOL officials venture into the field to talk with small plan fiduciaries, they're likely to find the fiduciaries have had similar experiences, advisers said.

“I'm amazed by some of the larger providers. The fee disclosure will say, 'Please refer back to the service agreement,'” said Jania Stout, vice president and retirement plan consultant for the Fiduciary Consulting Group at PSA Financial Services Inc. “This wasn't the intent of [the fee disclosure regulation], and it's not helping the plan sponsors.”

Many of the disclosures from service providers have been 10 to 20 pages long, advisers say. Ms. Stout noted that with some of the 10-page fee disclosures, much of what is included will point the plan sponsor back to the original service agreement, thus not providing further clarification on the fees. After pushing back against one service provider with documents that were less than helpful, Ms. Stout was told that the service provider's legal department had reviewed the disclosures and that — even with the length — they comply with the letter of the disclosure law.

Advisers themselves contend with their own disclosures, which start off at two to three pages, but bloat out to 10 pages because of additional legal language. “Ours are two to three pages of essentials, describing the services,” said John Wilcox, an adviser with Mayflower Advisors, which is part of Wells Fargo & Co.'s independent brokerage arm, FiNet. “Then there are seven additional pages — the legalese that goes with it.”

“This extraneous effort is becoming more of a nuisance than anything else,” he added.

Lengthy disclosure forms from a bevy of service providers have left plan advisers responsible for consolidating the information and making it bite-sized for plan sponsors.

It's a time- and labor-intensive task, many said.

“We do a summary disclosure for the client, otherwise you're back at the problem of having to quantify costs and you have all these different fee disclosures,” Ms. Stout said. “We felt it was important to consolidate them, especially for clients with multiple plans and multiple providers.”

In other cases, the disclosures are sometimes so general that the information “may” apply to a given client. It's up to the adviser to shake out whether this is the case for that retirement plan.

“What really bogs us down is if we have to take a lengthy 15- to 20-page disclosure, condense it, go back to the provider and find out if these things that 'may apply' actually do,” said Joe Connell, president of Retirement Plan Partners Inc.

That process is further complicated when working with a new client relationship: Vendors won't be as willing to share the information with the adviser if the plan in question is only a prospect, he noted.

One positive outcome of advisers' experience with wrangling disclosures is that some of them, particularly those who have more flexibility because they are not tied to a larger firm, have made sure to keep their own disclosures brief and easy to read.

“This is literally a two-page disclosure, maybe three with charts,” said Ms. Stout of her own disclosures. “It says we're taking a fiduciary position and it shows our fee, but it's way simpler than the providers' disclosures.”

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