Full Disclosure: Challenges in Implementing 408(b)(2) Regulation for 401(k) Plans

Scott Price, CPA

As 401(k) plans have begun to implement the Department of Labor (DOL)’s new 408(b)(2) fee disclosure regulation, plans have discovered several challenges and nuances.  I had the opportunity to speak with the Washington Business Journal on this topic a couple of weeks ago.  As I state in the article, one of the biggest challenges will be for 401(k) plans to concisely and clearly provide service fee information to plan participants.  401(k) plan administrators should attempt to format these disclosures in a way that makes the information accessible to plan participants with varying levels of financial literacy.

Another implementation challenge may be actually collecting the information from your plan’s service providers.  Unfortunately, you may encounter a scenario where a service provider fails to disclose the necessary information – in part or in full.  This is a serious situation that shouldn’t be ignored.  If a provider fails to furnish all required information, your contract or arrangement with that service provider will be considered prohibited by ERISA, and your plan fiduciary will have engaged in a prohibited transaction.

Fortunately, the DOL has provided resources to help you collect the full information necessary for your fee disclosures.  In the case of undisclosed information, there are two essential steps to take:

  1. Submit a Written Request to the Service Provider.  
  2. Notify the Employee Benefits Security Administration (EBSA).  Within thirty days of submitting a written request, you should submit a Fee Disclosure Failure Notice.  In order to streamline this process, you can now notify the EBSA online athttp://www.dol.gov/ebsa/contactEBSA/consumerassistance.html.

Note that EBSA does provide an exemption for fiduciaries who were unaware that a service provider had failed to disclose the necessary details. Certain conditions must be met to qualify for this class exemption.  For more information on submitting a Fee Disclosure Failure Notice, visit http://www.dol.gov/ebsa/regs/feedisclosurefailurenotice.html. 

If you have questions about your fee disclosure statements, contact your accountant to guide you through the process.   Initial implementation of these regulations has gone fairly well, but as your plan continues to provide these quarterly disclosures, I encourage you to ensure that the information is disclosed clearly, and to prepare to address any disclosure issues you may encounter from your providers.  A little time spent addressing these two specific challenges up front will save you a lot of stress in the long run.

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