Labor Department unveils kinder, gentler fee disclosure regs

Newly released final rule for disclosure to plan sponsors to kick in this July; controversial proposals dumped

Feb 2, 2012 @ 4:51 pm

By Darla Mercado

Broker-dealers and record keepers can breathe a little easier, now that the Labor Department has given them until July 1 to spell out fees and conflicts of interest to their plan sponsor clients.

The department today announced the long-awaited final version of its plan fee disclosure rule, known as 408(b)(2), which will require retirement service providers, including record keepers and broker-dealers, to detail costs.

A similar fee disclosure regulation for participants has been bumped back to Aug. 31. Initially, the disclosure regulation was due to take effect on April 1 and the participant fee disclosure on May 31.

An interim version of the rule was released in 2010. Since then, retirement service providers have been waiting for the DOL to release the final document so that they could prepare their systems for compliance and update their contracts with retirement plans.

Indeed, some providers, including Putnam Investments, jumped ahead and began implementing disclosures before the latest version of the DOL's rule was published.

Though the latest version of the plan fee disclosure rule doesn't differ much from the previous iteration, there are a couple of small changes. For instance, the regulation now calls for additional detail from service providers on indirect compensation. The updated rule also requires more specific descriptions of the annual operating expenses of designated investment alternatives.

Retirement industry advocates noted that in some respects, this version of the regulation is easier to comply with. For instance, many had feared that the Labor Department would require a summary fee disclosure — a sample of which was attached to the final version of the fee disclosure rule. However, the department noted that this was only a sample and not a requirement.

“We're thrilled at this point that the department didn't require a summary and that what they attached was only a sample,” said Larry Goldbrum, general counsel for the SPARK Institute, an advocacy group for record keepers. “Complying with that would have been virtually impossible and cost prohibitive.”

Further, providers are expected only to provide investment information on an annual basis, as opposed to a monthly basis, which many said would have been onerous. Finally, brokers will be permitted to use reasonable, good-faith estimates and ranges to display their compensation, as opposed to exact dollar amounts.

“A lot of advisers aren't going to be able to give precise dollar amounts on compensation on a plan-by-plan basis, so this makes it easier to deal with the regulation,” said Brian Graff, executive director of the American Society of Pension Professionals and Actuaries.

Industry participants felt that while the rule was an improvement over the previous version, they still took issue with some provisions.

“The rule requires covered service providers to make disclosures to the plan, which the plan sponsor would subsequently use to make disclosures to the plan participant,” Mr. Goldbrum said. “In a way, they've merged some disclosure regulations and made it a service provider obligation.”

Finally, although industry participants cheered the three extra months for providers to get ready for fee disclosure, some feel it still isn't enough time.

“You can't expect companies with multiple affiliates to retool, deploy and test [the new fee disclosures] by the first of July — maybe they could by the first of January [2013],” said Jason Roberts, chief executive of Pension Resource Institute. “It's nice to have some additional time, but for larger firms, it's unrealistic because of their reach and distribution.”

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