New 401(k) Disclosures as Service Provider Fee Disclosure Date Moved Again

Scott Price, CPA

The US Department of Labor (DOL) has again extended the applicability date of new service provider fee disclosures under ERISA Section 408(b)(2) to April 1, 2012.  The participant-level disclosures are also extended to July 15, 2012 to coincide.  What does this mean to employers?  To employees?  Among other things, it is helpful that the employer be the one to ensure employees understand fees that exist as part of their retirement plans, how they’re being covered, and that opting into a defined contribution plan could still be the best retirement plan move they could make.

The new service provider fee disclosure amends the original prohibited transaction rule for disbursements to service providers.  The new regulation adds that in order for plan fiduciaries to judge if a fee is reasonable, there must be written disclosures explaining direct and indirect compensation received by the service provider, including affiliates and subcontractors, as well as disclosing the existence of any potential conflicts of interest.  The written fee disclosures are necessary for any service providers that are expected to earn $1,000 or more in fees in a given year.

Participant-level disclosures will require employers to provide quarterly information about the following to participants or their beneficiaries of defined contribution plans:

  • Plan and investment expenses when the plan offers self-directed investment options
  • Investment performance data including a benchmarking mechanism

By extending the dates, the DOL is providing plan fiduciaries additional time to obtain all the required fee and investment information from their service providers so they can be disclosed, by the required date, in the required manner.  And not have employees taken by surprise by opening their retirement plan statements and discovering a list of fees they didn’t know they were paying.

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