New federal regulations often mean complex compliance steps with high associated costs. The newly enacted fee transparency regulations certainly have significant costs associated with them, but they will also benefit organizations that sponsor specific types of retirement plans by an estimated $2 million annually and almost $15 million during the next 10 years.

The Department of Labor (DOL) issued its final fee disclosure regulations in October 2010, wrapping up a three-phased plan to increase the transparency of retirement plan fees to benefit plan sponsors and their participants. This regulation makes it easier to compare actual costs of plans apple-to-apple.

Prior to these regulations, some service providers buried their fees or conflicts of interest within complex proposals and contracts that might create the appearance of being less expensive compared to others. These new regulations level the playing field for all service providers and create a big win for sponsors and participants in the following ways:

• Plan sponsors can be better fiduciaries and stewards for their participants because they will have a clearer understanding of fees, as promoted in the new regulation.

• Simpler yet more complete investment information will help participants become more informed decision-makers.

• Fees and services will be “right-sized” for the marketplace.

• Service provider fees will be more transparent and easier to compare.

Highlights and timelines

Compliance with the new regulation was anticipated to take significant time by all parties, therefore the DOL created a multi-year timeline. Simply stated, the timeline to comply is as follows:

Phase 1. 2009: Disclosure to the government

Plan sponsors were required to use the Expanded Form 5500 Schedule C to report indirect compensation received by service providers. This step should already have taken place by plan sponsors.

Phase 2. 2011: Disclosure to plan sponsors

Beginning July 16, 2011 and retroactive to July 2010, service providers must change business practices and amend contracts to disclose the following to plan sponsors:

• Statement of fiduciary status (i.e., is your provider acting as an ERISA fiduciary to the plan?)

• Description of services

• Cost of recordkeeping services

• Description of direct and indirect compensation

• Compensation payable upon contract termination

Phase 3. 2012: Disclosure to plan participants

For retirement plans with year-ends beginning after November 1, 2011, ERISA-governed participant-directed plans, such as 401(k)s and 403(b)s, regardless of size, must report:

1. Four types of plan-related information:

• General plan information

• Administrative expense information

• Individual expense information (on or before the date a participant can direct investments and then at least annually thereafter)

• Statement of actual charges or deductions (provided to a participant at least quarterly)

2. Five types of investment-related information (on or before the date a participant can direct investments and then at least annually thereafter.):

•  Performance data

•  Benchmark information

•  Fee and expense information

•  Internet website information

• Glossary

Economic benefits and costs

The DOL estimates these changes will be economically significant in both implementation costs to plan sponsors/service providers and in future savings to sponsors/participants. While I am never sure how Washington comes up with their numbers, the following are DOL estimates of the impact on both benefits and costs of the new regulation:

•  $578 million: anticipated first-year cost to plan sponsors and service providers

•  $2 billion: anticipated first-year savings to plan sponsors and participants*

*Savings result from reduced time and cost for fiduciaries to fulfill duties and in direct participant fee savings.

How to prepare for compliance

While much of the onus for compliance targets service providers, DOL rules do not relieve fiduciaries or plan sponsors from the duty to monitor, compare and select service and investment providers.

This simple process can help fiduciaries comply with the regulations:

1. Identify all service providers.

2. Request service provider disclosures, disclosure timelines and analysis.

3. Consider having your plan(s) benchmarked occasionally against others to ensure reasonable fees and services.

4. Contact a trusted service provider for assistance and benchmarking resources.

More information and other details are available in the actual regulation document which can be found on the DOL website at www.dol.gov.

		Lee Kliebert, JD, CPC, AIF, is managing partner and chief compliance officer at PensionTrend Investment Advisors, headquartered in Okemos. He is responsible for overseeing pension portfolio management, client services and compliance functions.