Record keepers and broker-dealers can take a breather on fee disclosure to retirement plans — for now: The Labor Department has bumped back the effective date by another three months.
The closely watched plan fee disclosure regulation, better known as 408(b)(2) after the corresponding section in the Employee Retirement Income Security Act of 1974, was initially supposed to go into effect July 16. After protests from the industry, the DOL last month said it would push back the date to Jan. 1 and then gave service providers until April 1 to comply.
Specifically, the Labor Department wants retirement service providers to spell out their fiduciary status to the plan, detail the services they provide, and disclose their compensation. The regulation is currently in its interim final stage, with the final version — and any possible changes — still unreleased.
“It's a welcome delay,” said Charles P. Nelson, president of Great-West Retirement Services. “But we have to know whether the DOL is thinking of final changes in order to know whether this allows providers enough time.”
“It will make it easier for the industry to be fully compliant by April 1; the industry overall was struggling to make the deadline,” said Marcia Wagner, managing director of The Wagner Law Group. “But clearly, this harms people who had their act together and would have been ready.”
Rumors flew throughout the spring and summer that the Labor Department would set back the deadline for the regulation, as the rule was still in its interim final form.
Industry participants and ERISA attorneys expected the agency to require a summary disclosure as part of the final rule, but as time went on, service providers became increasingly uncertain of their ability to comply in a timely fashion.
“Without knowing what these changes and additional requirements are, it is impossible to know how they will affect the systems, processes and documents that we have created,” Krista M. D'Aloia, vice president and associate general counsel at FMR LLC, Fidelity Investments' parent, in wrote a letter to the DOL. The service provider pushed for an effective date of Jan. 1, 2013.
Specifically, service providers needed more time to determine how to report minor changes in expense ratios throughout the year, how to report indirect compensation in brokerage windows and how to treat investment menu changes initiated by the plan fiduciary, and not the service provider, according to the Investment Company Institute's letter to the Labor Department.
In Great-West's case, the record keeper had an approach to meet fee disclosure requirements to participants and plans, but compliance came with its share of difficulties, including coordinating all service providers' disclosures and presenting fee data into one comprehensive document for plan sponsors.
A second requirement that would call for service providers to notify plans within 60 days when there is a change in fees or revenue sharing also would have been cumbersome. “We would be sending out this document pretty much every month as fees get adjusted time to time on various funds,” Mr. Nelson said.
Ed Lynch, chief retirement officer of Dietz & Lynch Capital, noted that while the delay may give service providers more time to prepare, he hoped that this would be the last of the postponements.
“It would concern me if this is a pattern that continues,” he said. “There's a greater awareness that fees need to be clear. I'd like to see it sooner rather than later, but I understand there's a lot of complexity here.”
