Update on Qualified Retirement Plan Participation Fee Disclosures

Ginny Gribble, Director of Retirement Plan Services   email | bio
January 2012

Last May, we wrote about upcoming participant fee disclosure regulations that were going to become effective for plan years beginning on or after November 1, 2011 (so for 2012 calendar year plans). (Click here to review the previous article.)  Since then, the effective date has been postponed until April 1, 2012. That means participants will see more information about fees paid from the plan on their second quarter 2012 statements. Some providers have already made the changes necessary to accommodate the regulations and may implement them with first quarter 2012 statements.

The new regulations apply only to plans where participants can direct the investment of their accounts. The regulations would not apply to trustee-directed 401(k) or profit sharing plans, or to defined benefit plans, including cash balance plans. If your plan has self-directed brokerage accounts, most of the regulations will apply.

As a refresher, additional disclosures to participants about both hard dollar (direct) and soft dollar (indirect) fees are required. Direct fees are dollar amount fees that are paid by the plan, such as your Third Party Administrator's (TPA's) fees, fees for an annual CPA audit, if applicable, and transactional fees for things like loans and distributions. Indirect fees include compensation paid to service providers such as the recordkeeper, investment advisor and TPA through items such as 12b-1 fees, revenue sharing and commissions. Fees that the company is paying directly to the providers are not subject to the fee disclosure regulations, as they are not affecting participant accounts.

The new regulations also require an initial notice to participants when they first become eligible for the plan, as well as an annual notice to all participants. The notice must include the following information:

1.  Listing of fund options under the plan with fund performance and expenses for each;

2.  A statement disclosing that fees may be paid by the plan sponsor or deducted from 
participant accounts;

3.  Listing of all potential fees that could be paid by the sponsor or deducted from participant accounts;

4.  Information about how participants can manage their accounts, including trade restrictions, etc;

5.  Standard information from the Department of Labor (DOL) website about investing and instructions on how to access their website; and

6.  Named plan administrator's (generally the employer) contact information and instructions for accessing additional investment data.

Again, many providers and TPAs will prepare or assist in preparation of the notices, as they do now with other required notices. Please be aware that, if changes in investments available are made during a particular plan year, a separate notice with information about the new investments is required.

What do plan sponsors need to do now? Be aware of the new rules and watch for information from your providers. Many providers have already sent some preliminary information. You may also want to have some meetings/discussions now with plan participants to start explaining what they will be seeing on their quarterly statements in 2012. Providers, including plan investment advisers, may be able to help with that communication. Setting the stage now may help to avoid a deluge of questions when the first affected statements come out.

One final note: in addition to participant fee disclosures, there are plan sponsor disclosures required as well. These will likely come in the form of service agreements from various providers and will disclose all direct and indirect fees that apply to your plan. 

If you have any questions or would like more information, please contact Ginny Gribble at ggribble@KolbCo.com.