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How to make sense of the recent Department of Labor Fee Disclosure Regulations as they pertain to 401(k) plan sponsors.
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401(k) Fee Disclosure Regulations Defined a NEW
Fiduciary Duty – Are You Compliant?
Presented by
Janel M. Cross, PresidentAlign Financial Services Group
The Department of Labor expects more from you than just collecting and distributing disclosures.
You are charged with assessing the “reasonableness”
of your plan’s fees.
You May be Unaware of Your Most Significant Fiduciary Duty
Receive disclosures from
covered service
providers by July 1st,
2012Distribute disclosures
to plan participants
by August 30th, 2012
Engage in a
prudent process
to evaluate the
“REASONABLENES
S” of fees and
services to ensure
that we do not
commit a breach
of our fiduciary
duty.
The preamble to the final regulations indicates that the DOL does not consider ignorance of these
disclosure rules to be a basis for relief from ERISA’s prohibited transaction rules.
Source: Reish, Fred et al. “ERISA Service Provider Disclosures: What Plan Sponsors Need to Do Now” Client Bulletin, July 2012. www.drinkerbiddle.com
Ignorance is NOT Bliss
Upon receipt of the disclosure documents from your covered service providers (vendors), you must:
1. Ensure that all disclosures received are complete according to the requirements of section 408(b)2.
2. Determine whether your fees are “reasonable” relative to services provided.
3. Identify and address any potential conflicts of interest.
What is expected of Plan Sponsors?
“…if a plan sponsor fails to engage in a prudent process to evaluate disclosures provided by a service provider, or fails to identify required disclosures that are missing or deficient and
take affirmative action, it will have engaged in a breach of fiduciary duty and, possibly, a prohibited transaction.”
Source: Reish, Fred et al. “ERISA Service Provider Disclosures: What Plan Sponsors Need to Do Now” Client Bulletin, July 2012. www.drinkerbiddle.com
Is the DOL Planning to Enforce Compliance?
In preparation for the release of the regulations, the DOL added 997 employees in 2009. 70% of those
new hires were added to the enforcement division.
Source: “Retirement Planners Beware: DOL, IRS Beefing Up Enforcement.” Waddell, Melanie. Advisor One. 06/14/2011
Are You Likely to be Audited?
At the end of 2010, the Internal Revenue Service’s employer plan division disclosed its list of “plan sponsor
audit targets” – small business owners; 403(b) plans; and U.S. companies owned by foreign entities.
Source: “Retirement Planners Beware: DOL, IRS Beefing Up Enforcement.” Waddell, Melanie. Advisor One. 06/14/2011
First Class Action Suit over 401(k) Fees Results in $35 Million in Fines
Manufacturer ABB, Inc. was fined for:1. Failing to monitor fees and revenue-sharing
payments to the plan’s trust company2. Failing to negotiate rebates to offset or reduce
costs to plan participants3. Replacing an actively balanced fund with the trust
company’s target date fund which generated more revenue sharing for the trust company
Source: 11 April, 2012. “Company Hit for $35 Million in 401(k) Fee Case.” Mamorsky, Jeff. CFO.com
Do You Have Time to Research What is “Reasonable”?
Who will do the homework on what is truly “reasonable” in order to demonstrate
fiduciary responsibility? 45% of small business respondents indicated that 4.00% was a reasonable fee.1 The average all-in 401(k) fee paid by small plans is between 0.99% and 1.83%.2
1. Study conducted by ShareBuilder 401(k), cited in “401(k) Fee Disclosure Leaves Small U.S. Firms with Questions.” 11 Sept, 2012. NBCNews.com
2. Study conducted by Deloitte and the Investment Co. Institute, cited in “401(k) Fee Disclosure Leaves Small U.S. Firms with Questions.” 11 Sept, 2012. NBCNews.com
Should You Hire An Independent Adviser?
“While the evaluation of the reasonableness of compensation may be undertaken without assistance,
courts tend to agree that it is a “best practice” to work with a knowledgeable and independent adviser
to assist in this process”
Source: Reish, Fred et al. “ERISA Service Provider Disclosures: What Plan Sponsors Need to Do Now” Client Bulletin, July 2012. www.drinkerbiddle.com
How Can Align Financial Services Help?
Our Fee Disclosure Assistance Programs can help you:
1. Understand revenue-sharing within your plan.2. Review your disclosures for completeness.3. Identify potential conflicts of interest.
How Can Align Financial Services Help?
Our Fee Disclosure Assistance Programs can help you:
4. Perform an Independent Comparative Fee Analysis to Assess “Reasonableness” of your plan’s fees.
5. Demonstrate to enforcement agencies that you have been prudent in your attempt to gather accurate information about the "reasonableness" of your plan's fees.
Take the Next Step!
To receive information about our well-priced plan assessment packages, please call or email us.
We are also happy to answer any questions you may have about this
important development.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a
Registered Investment Advisor
www.alignfsg.com
