The Department of Labor (DOL) has finally published its new fee disclosure ruling for 401k plans, generally called 408(b)2. The ruling’s requirements went into effect on July 1, 2012, and while you could argue that the goal of the new ruling is sound, some employers are struggling to understand its features. Unfortunately, this regulation may add further confusion and extra work for plan sponsors.
About the New DOL 408(b)2 Regulation
The new DOL regulation requires service providers to give information to plan sponsors to determine the reasonableness of compensation paid to the service providers. It also requires the service providers to disclose any conflicts of interest that may impact a service provider’s performance under the current arrangement and any direct or indirect compensation received in connection with the services they offer.
How the New Regulation Will Affect Your Company
These new 401(k) regulations mandated by the DOL will likely impact anyone who administers a company-sponsored retirement plan. Some things to consider as you work through the new rules include:
- No standardized reporting form. The disclosure information required under this new set of rules has no set reporting format. That will likely make comparing different plans and products offered by different companies more challenging. In addition, the new reporting forms used by financial companies may run dozens of pages or more.
- Sponsors are required to verify receipt of new disclosure information. Another requirement of the new ruling states that plan sponsors must receive the new disclosure documentation within 90 days of requesting it or sever their relationship with that vendor. Sponsors, especially those with multiple plans in place, will need to put a workable tracking procedure in place to avoid having necessary documentation fall through the cracks.
- Auditing is on the plan sponsor. The goal of 408(b)2 is for individual plan participants to be aware of fees, compensation and conflicts of interests that apply to their retirement plan. However, making sense of the raw data sent by the vendor, auditing it and presenting it to plan participants will be the responsibility of plan sponsors. Fees are often necessary to create a good return for the participants. It will be up to the plan sponsors to decide whether those fees are reasonable and communicate their value to plan participants.
While this may sound complicated, complying with and making sense of the new DOL regulations should not be difficult for plan sponsors who expect this influx of information and put rules in place for handling it in advance. Why not take a few minutes today to familiarize yourself with the new 401(k) regulations, just to make sure you’re ready?