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New 401(k) Fee-Transparency Rules Demand Attention

Sunday, September 2, 2012
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Have plan officials been asleep at the wheel when it comes to assessing the fairness of fees charged participants in their 401(k) plans?

Not exactly, but there has been plenty of confusion -- some of it cited in an April 2012 report from the U.S. Government Accountability Office. These are issues the Labor Department hopes to address with the 401(k) transparency rules it began to enforce on July 1.

July was the deadline for providers to disclose clearer and more detailed fee information to plan sponsors. Another, more challenging deadline -- from an HR perspective -- is approaching on August 30, 2012.

This time, it will be up to plan officials -- the very same committee members or individuals who typically sign off on 5500 forms -- to supply more detailed and specific information to plan participants regarding the fees they're paying for their 401(k) plan management and administration.

It's no secret that plan participants are often in the dark when it comes to the plan fees they often pay out of their plan assets -- with many, if not most, participants believing they pay no fees at all.

"In addition to sponsors who said their plans paid recordkeeping and administrative fees, sponsors of 9 percent of plans did not know if they or their participants paid for these services," the GAO reported last April, citing a survey of 1,000 plan officials polled regarding the 2009 plan year.

Experts say new provider disclosures should make things easier, though there will be new plan-sponsor obligations, as well. "It's a time when everybody has to show their cards," says Dave Leali, a wealth adviser with United Capital's South Florida region.

Brad Campbell, a former assistant secretary of labor for employee benefits and head of the Employee Benefits Security Administration under Pres. George W. Bush who is now counsel at law firm Drinker Biddle in Washington, says plan sponsors will need to offer participants a number of components in the coming months.

The Labor Department, he says, is calling for plan sponsors to provide plan participants with a comparative chart by that Aug. 30 date, which describes the designated investment options in the plan, their track history over 1-year, 5-year and 10-year periods or since inception, as well an expense ratio and a layman's rendering of the fees participants are paying in dollars per thousand invested. "The DOL determined that many participants did not understand expense ratios alone, so these were paired with the dollar illustration in the final regulation," says Campbell.

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Experts also offer a few additional tips for plan officials dealing with the fee-transparency deadlines, including:

* Don't rely on snail mail alone to let participants know about the changes relating to disclosure. Work with your advisor or other plan providers to develop a strategy to complete the disclosure process.

* Make sure you and your providers are equipped to handle the calls that will come in once plan participants receive third-quarter statements showing expenses not disclosed for the second quarter.

* And don't underestimate the importance of the fee disclosures.

They represent "a new fiduciary duty of the plan administrator," says Campbell, adding he's concerned "there is a group of plan sponsors [unaware] of the seriousness of this obligation."

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