English: Allied Insurance Company of the Maldives - Front Office (Photo credit: Wikipedia)
Here’s the first concern Reish brought up: The regulation doesn’t currently require disclosures be made in any particular format. Since the presentation, the DOL has published a FAQ “guide,” but, again, that guide does not endorse any particular format. The result, warned Reish, is that multiple documents may be used. In an interview following his presentation, Reish told FiduciaryNews.com, “I am worried that many plan sponsors/fiduciaries will not make the effort to wade through hundreds of pages of printed materials to locate and understand the fees and costs….and therefore will not evaluate those costs.” He, however, leaves us with this hopeful expection: “Fortunately, advisers who are focused on retirement plans will help many of those sponsors by using benchmarking services.”
In fact, service providers are already starting to release disclosures in just such an expansive manner. Sam Paglioni, Partner at Integer Wealth Advisors Group, LLC in Kennesaw, Georgia, has firsthand experience of the consequences Reish warns of. Paglioni recently obtained a fee disclosure from an insurance company. Of the report, which “stretched out over 15 pages,” he says, “It will be left up to the client to try and parse the information.” He says the report also contains and extensive fee chart with a myriad of fees. “All I was looking for, for our client, was somewhere that organizes it all for the client: Here’s what we are paid, here’s what they are paid…..nothing, they do not ‘roll up’ anything into separate numbers,” says Paglioni. “Now, they do outline the mutual funds used and break that out accordingly, but they do not bother to ‘wrap it up’ for the client. The client will have to go and figure it all out (which is what I’ll do).”
The new fee disclosure regulations become effective July 1, 2012 and most pplan sponsors are unaware of the requirements and consequences. It appears service providers like insurance companies to ‘hide’ fees by including the necessary information in massive amounts of paper.
PLease comment or call to discuss how you must analyze the required data.
Education is the foundation of all successful endeavours. When plan participants understand the what and the why they will save more and remain disciplined to a strategy. Plan participants do not have to know everything about investing, they just need to know the right things.
Maintaining effective plans with a strong education component isn’t just the right thing to do; it’s the foundation of a retirement plan that complies with federal rules. If plans are not delivering participant-driven education programs, they’re not equipping their participants to make informed decisions about their investments. Therefore, these plans are not compliant with federal rules and thus, they set up sponsorsfor potential lawsuits.This summer, when service providers supply plan sponsors with the required list of services they’re providing for their current compensation, companies should take note of whether education programs are included in their services. In many cases, they won’t be.
This shortcoming, along with various others showing how little many plans are receiving for the fees they’re paying, will prompt many sponsors to seek more reasonable fees. The best way to do this is to:
Issue a request for proposal (RFP).
Compare the scope of services to those offered by other providers for the fees being charged, with emphasis on individual employee assessment and education.
If effective, deeper financial education can empower employees to assess the required basic disclosures through the lens of fundamental financial knowledge. Only then can 401(k) plans ultimately achieve their true purpose: to assure retirement security.
Employers who are proactive and address the fee disclosure regulations will experience less questions from employees and less stress. This regulation will separate the good from the bad. You and your employees deserve a good quality retirement plan that is fairly priced. It’s not about being the cheapest it’s about receiving a good value for a reasonable price. Eliminate all the pay points that do not add value to your plan.
Image via Wikipedia
Now is the time for employers to prepare for the August 30 deadline. Responsible plan fiduciariesand plan administrators should take the following steps now.
Determine which plans and which service providers are covered by the requirements.
Develop a plan for assessing the completeness of service provider fee disclosures when they are received and setup a communication link with the service provider to correct incomplete disclosures.
Clarify with service providers who will formulate and distribute specific participant-level disclosures, including integrating certain service provider disclosures into the participant-level disclosures.
Establish a procedure for notifying the Department of Labor if complete information can not be obtained.
Establish ongoing processes to review and document the steps taking during the preparation of the fee disclosures to participants.
Employers who are proactive with regard to the new 401(k) fee disclosure regulations will experience a smooth transition. Those who ignore preparation will become reactive to employees questions.
Please comment or call to discuss how you company can prepare for the pending regulations.
Related articles
U.S. 401(k) Disclosure Is Coming-What To Do In January (401kplanadvisors.com)
Should Your Company Hire an ERISA 3(38) Investment Manager for The 401(k) Plan? (401kplanadvisors.com)
Why 401(k) Fee Disclosure is a Big Win for Small Business Owners (401kplanadvisors.com)
The big question is..Why have service provders been fighting fee disclosure so diligently? Do they have something to hide? from plan sponsors or participants or both? Should participants pay for all the cost in their 401(k)? The 401(k) is the sole source of retirement for most Americans and must be treated as an employee benefit. When these regulations become effective many plan participants will ask many questions. Are You, the plan sponsor, prepared?
Image via Wikipedia
Here’s where things start to go south. What happens if a service provider fails to disclose its feesor only discloses a portion of them? Will plan sponsors get by merely through offering their best efforts to obtain this fee information? Probably not, if you read between the lines of the DOL comments. Borzi’s actual comment to the press indicated the 401(k) plan sponsor must fire any service provider that fails to properly disclosure its fees.So, in addition to knowing all the ins and outs of their specific plans, and the ERISA laws that govern them, plan sponsors have now been summarily deputized by the DOL to enforce compliance on service providers.
If you think about it, it’s a smart move by the DOL. It’s also in keeping with the whole self-policing philosophy that pervades this Internet generation. What better way to protect the masses if the masses have the authority to unilaterally punish wrongdoers (albeit, it’s only by firing them). If the DOL is really inventive, it can create a disclosure site where plan sponsors can report their compliance related lack-of-disclosure firings.
This would help other plan sponsors become aware of potential non-compliance liabilities resulting from hiring these vendors. In turn, a public disclosure file, similar to the on-line “complaints” log the SEC provides to investors, might just provide an incentive for service vendors to comply.
In the end, this just might make things a lot easier for 401(k) plan sponsors.
The new fee disclosure regulations will make both the plan sponsors and plan participants on the fees they pay and why. The plan participants will benefit because lower expenses results in higher return. Remember an extra 1% in fees over 40 years of saving makes a huge difference.
Please comment or call to discuss how your plan will be affected by the new fee disclosure regulations.
Related articles
Benchmarking: The Key to a 401k Plan Sponsor’s Fiduciary Compliance Review (401kplanadvisors.com)
What ‘Fee Disclosure’ Rules Really Mean for Plan Sponsors (401kplanadvisors.com)
Three sure-fire 401(k) predictions for 2012 (401kplanadvisors.com)
There will be many service providers looking for ways around the new fee disclosures rules in order to take advantage of plan sponsors and participants. This is unfortunate since the reason for the regualtions is to improve the quality of retirement plans offered to employers. If the retirement plan is to survive in the private sector the interest of plan participant must come first above all else.
Image via Wikipedia
Roberta Ufford, principal at Groom Law Firm, said she agrees brokers must be cautious if they elect to state a range of fees. Ranges rather than specifics make sense for brokerage windows because so many compensation arrangements are possible, but broker/dealers must ensure their range numbers are realistic and standard for the industry.”When you use a range, it should be appropriate for the circumstance, she said. “[The] DoL intended to provide flexibility [by allowing ranges] when more specific disclosure would be difficult to provide, and that can be a great thing, but if you’re trying to get a specific answer for when it’s OK to use a range instead of more specific information, there is no specific answer. So you really have to use a good-faith effort here.”
Ufford thinks the real problem could arise with small-plan advisers who may not have been disclosing detailed information about compensation. Many recordkeepers and other plan services providers already have systems in place to disclose specific indirect compensation because of Schedule C on Form 5500, which has required plan sponsors and administrators to report service provider fees and compensation for plan years beginning in 2009 (see “EBSA Issues Schedule C Fee Disclosure Guidance“).
There will continue to be confusion on fee disclosure, particularly when there is a brokerage window within the plan. Plan sponsors will never really know there fee disclosure information is complete or realistic when working with a broker dealer.
Please comment or call to discuss how this affect you and your plan.
In 1996, an interpretive Bulletin 96 * 1, the Department of Labor (DoL) issued guidance concerning fiduciary advice and education for participants in that guidance the DoL state:
Image via Wikipedia
The Department also notes that a plan sponsor or fiduciary would have no fiduciary responsibility or liability with respect to the actions of a third party selected by a participant or beneficiary to provide education or investment advice where the plan sponsor or fiduciary neither selects nor endorses the educator or advisor, nor otherwise makes arrangements with the educator or advisor to provide such services.
Put another way, if the participant selects their own adviser to help allocate their investments the plan sponsor is not required to monitor the performance of the adviser. However, should the plan sponsor allow the service provider to advise and educate their participants, the plan sponsor is required to monitor the performance and products sold by the service provider.
The DoL will investigate cases based on the facts and circumstances evident. In other words plan sponsors will be liable for products sold and advice given should it be found that the products or advice was imprudent. Care must be taken when a plan sponsor allows the agent or broker who sold them the plan to advise their employees (participants). This will be seen as an endorsement of the agent or broker and requires monitoring of their performance and product sold.
Many agents or brokers see the 401(k) as a lead generation tool to sell additional high commission products. The 401(k) should be treated as an employee benefit and not a marketing gimmick. The DoL will protect plan participants and their beneficiaries.
Please comment or call to discuss if you must monitor the performance and products of your service provider.
Related articles
U.S. 401(k) Disclosure Is Coming-What To Do In January (401kplanadvisors.com)
The 408(b)(2) Burden on Fiduciaries. (401kplanadvisors.com)
Benchmarking: The Key to a 401k Plan Sponsor’s Fiduciary Compliance Review (401kplanadvisors.com)
There are many in the retirement plan industry desparately trying to delay fee disclosure, indefinitely if possible. This will not happen because the DOL understands how critical this information is to all Americans looking to retire someday. Ideally retire without the aid of the government.
The Labor Department has refuted claims that it plans to move the April 1 compliance deadline for new 401(k) fee disclosure rules to later in the year to give service providers time to make changes based on the final regulation.The 408(b)(2) regulation will require service providers to detail any fees they are charging plan sponsors. The final regulation could be issued before the end of January.
“The department is sympathetic to concerns by industry, but we haven’t signaled that applicability deadlines will be extended,” said a DOL spokesman. “We’re sympathetic to concerns, so we are aware of them. I’m not going to speculate where the current information is coming from.”
Reuters released a story on Wednesday stating that the department was thinking about moving the compliance deadline.
Whether the deadline is extended or not fee disclosure will happen. Plan sponsors should be aware of all the cost paid by their plan regardless. This benefit is far too important the future of all American workers.
Please comment or call to discuss how this affects you and your organization.
Related articles
New Rules Will Have Fiduciary Impact (401kplanadvisors.com)
Service Provider Fee Disclosures Under ERISA (401kplanadvisors.com)
DOL investigations of Retirement Plan Financial Advisors (401kplanadvisors.com)
When the new fee disclosure regualtions become effective this year, 2012, many plan participants will be unpleasantly surprised. Many will begin the ask questions about the fees they are paying and why. Plan sponsors can be proactive by having an independent benchma
Image via Wikipedia
rk analysis done on their plan.
2) April’s implementationof the DOL’s new Fee Disclosure Rule will create a bigger headache for 401(k) plan sponsors than for 401(k) service providers. Of course, the implied prediction here – that self-serving 401(k) service providers won’t yet again convince the DOL to defer implementation of this rule – stands as the bolder prophecy. Still, assuming 401(k) investors start seeing the actual fees they pay sometime in the second quarter, expect to witness the greatest case of collective sticker shock ever. And who will they turn to with their complaints? Their 401(k) plan sponsor’s friendly HR department. When in doubt, shoot the messenger. And who will the messenger shoot?3) By the end of the year, bundled service providers’ fees will be dropping dramatically. But it may be too late for them. After decades of hidden fees and avoiding the “fiduciary” label, 2012 finally catches up to them and exposes the self-dealing behind the curtain. Lowering fees can’t make up for the loss of trust and reputation, as 401(k) plan sponsors move en mass away from the bundled model and adopt a “best of breed” approach.
For small to mid sized employers to remain competitive for talented employees and retain thise employees they must improve the quality of the qualified retirement plan their offer. This can be done by outsourcing this responsibility to experts in the field.
In evaluating service providers, plan fiduciaries should not limit their analysis to cost. Instead, fiduciaries must take into account other factors that are relevant to making a prudent decision, such as conflicts of interest, the results being produced by the service provider, references, and the needs of the plan and its participants. The preamble to the proposed regulation explains: “A responsible plan fiduciary should not consider any one factor, including the fees or compensation to be paid to the service provider, to the exclusion of other factors. Further, a fiduciary need not necessarily select the lowest-cost service provider, so long as the compensation or fees paid to the service provider are determined to be reasonable in light of the particular facts and circumstances.”
It may seem difficult to evaluate criteria such as conflicts of interest. However, much of that responsibility can be handled by understanding and evaluating all of the compensation being received by the service provider from all sources. For example, if the service provider receives more compensation from some investments than others, has the prospect of additional compensation influenced the service provider’s recommendation—possibly to the detriment of the participants?
The end result of these regulations will be a more prudent retirement plan for the company and it’s employees. Plan sponsors have the burden of providing their employees with a retirement savings vehicle or the government will.
Please comment or call to discuss how this will affect you and your company.
Related articles
A Closer Look at Fiduciary Status Under ERISA (401kplanadvisors.com)
What ‘Fee Disclosure’ Rules Really Mean for Plan Sponsors (401kplanadvisors.com)
Your employees will be aware of how much they are paying for the retirement plan you offer. Your responsibility is to verify that the costs are reasonable and justified. The end result is a better retirement plan for yourself and your employees.
Recent articles addressing the U.S. Department of Labor’s (DOL) fee disclosure regulations taking effect in 2012 under the Employee Retirement Income Security Act‘s (ERISA) section 408(b)(2), for fee disclosures from service providers to plan sponsors, and section 404(a)(5), for participant-level fee disclosures, have largely emphasized the impact these rules will have on retirement plan vendors—how they must structure their fees, how and what types of disclosures they will provide, and how their accountability will be altered.Retirement plan sponsors, however, will also experience a sea change in their fiduciary role and responsibilities. The DOL rules will impact plan sponsors equally, if not more, than their service providers and will require an overhaul of the plan sponsor’s approach to many formerly rote fiduciary activities.
The emphasis made in commentaries by vendors’ associations on the implications of the rules for their members has inadvertently diminished the focus on plan sponsors’ new duties under these regulations. Plan sponsors, for example, will have a responsibility to examine and audit the adequacy of their vendors’ fees. The government’s use of the word “disclosure” as the keyword in the rules serves to disguise the urgency that the rules dictate for plan sponsors and their roles.
————————————————————— Plan sponsors now have a responsibility
to examine and audit the adequacy
of their vendors’ fees.
As a plan sponsor your fiduciary responsibilities have increased with the new DOL regulations. The end result will be a better plan for your employees.
Please comment or call to discuss how this affects you and your company retirement plan.
Related articles
Who Are Your Fiduciaries? (401kplanadvisors.com)
Retirement Plan Sponsors’ 401(k) Perceptions vs. Reality (401kplanadvisors.com)
Study: Number of Workers Financially Unprepared for Retirement at Crisis Level (401kplanadvisors.com)
