|
 What To Do With the New Fee Disclosures
AFTER You Get them!
First, what these disclosures are: As you probably know, the Department of Labor (DoL) has finalized the New Fee Disclosure regulations with the following expressed goals.
- Schedule C revisions are intended to clarify the reporting requirements and improve the information plan officials receive regarding amounts being received by plan service providers.
- 408(b)(2) is intended for plan sponsors to ensure ...that arrangements with their service providers are "reasonable" and that only "reasonable" compensation is paid for services.
- 404(a)(5) is designed so that workers are given, or have access to, the information they need to make informed decisions.
The covered service providers (CSPs) are targeted by the regulations; but the DoL doesn't regulate CSPs - it's the employer-plan sponsors who are on the hook for any non-compliance issues. The plan sponsors must obtain the 408(b)(2) disclosures from CSPs and make participant disclosures under 404(a)(5).
The required 408(b)(2) disclosures must be delivered to plan sponsors by July 1, 2012; but it's up to the plan sponsors to make sure they're delivered! That makes July 1st a deadline rather than a starting point. What's more, plan sponsors will need to determine if the disclosures are complete and accurate. the White Paper I've highlighted in the last two issues will provide more information.
Checking completeness: Plan sponsors should, on or soon after July 1st, check that fee disclosures were actually received from each covered service provider (CSP). CSPs include any fiduciaries, record keepers, brokerage firms, third party administrators, and any firm receiving indirect compensation.
When reviewing these disclosures, check them to see if other covered service providers are mentioned from whom no disclosure were received and be sure that all the required categories of information are included in the disclosure (services provided, fiduciary status, costs, conflicts of interest, etc.) Next, you want to make sure the information provided is both clear and usable in determining if services and costs are reasonable. There's only one way to do it - and all plans should be doing it annually - and that's benchmarking, a relevant process for objectively determining if what your plan is paying its service providers is in line with other plans of the same size across different platform and provider models. If not, immediately request any needed information. Here's our 2-cents.
Corrective action must be taken If there are missing fee disclosures, if information is missing or if disclosures are unclear (see below).
Checking accuracy: Plan Sponsors should compare information received from CSPs on disclosures to what is already known. Compare information for consistency across multiple providers. For example, if a record keeper reports it expects to pay a TPA $5,000, then the TPA should report that it expects to receive $5,000. Compare key information for consistency across multiple types of disclosures. Determine if Schedule C says the same thing as 408(b)(2) and the same as 404(a)(5).
Specific Corrective Actions in the Event of Disclosure Failure
If disclosure requirements are not met, following the DoL prescribed procedure relieves the Plan Sponsor of fiduciary liability. The procedure consists of (1) requesting the needed information in writing and (2) after 90 days, reporting the failure of service provider to the DoL, and (3) replacing the service provider, if necessary.
Industry-recognized and objective fee-disclosure certification can go a long way to demonstrate compliance and plan sponsors would be wise to review this option. You can learn more here.
Next week we'll talk about how you can determine if the disclosures are usable!
James Lorenzen, CFP, AIF
Founding Principal
THE INDEPENDENT FINANCIAL GROUP
A Registered Investment Advisor
805.265.5416
| 
About IFG