Don't forget Step #2! If you oversee a 401(k) plan, it is important to understand the new disclosure rules - especially a key step that many are omitting. What's the risk? It's about documentation and doing what's best for the plan participants. If your plan gets audited by DOL (they are ramping up audits even for small plans) or a lawsuit occurs, you would have to produce proof of you doing your fiduciary job. That is when it would come to light. By then it is too late. Lawsuits and DOL audits aside, you do this because you want to be doing what's right under your fiduciary responsibility. By now plan sponsors and administrators of company 401(k) plans should have received the 408(b)(2) disclosures from their providers. Receiving the 408(b)(2) disclosure is only PART 1 of fulfilling the 408(b)(2) regulation. Part 2 of the new 408(b)(2) regulation is that the Plan Sponsor must independently benchmark their plan. Mary Rosen, Associate Regional Director of the Department of Labor EBSA in Boston was asked: Can a plan sponsor rely on the service providers to comply with 408(b)(2)? Ms. Rosen's answer: "The short answer is no. The regulation requires two things to happen - the disclosure to be made and then
- (step 2)the determination that the disclosure is reasonable, that the contract is necessary, and that the fees are reasonable."
"So relying on the service provider's disclosure would be a mistake on the part of the plan fiduciary. The whole idea is to go through a prudent process and make sure that everything is reasonable. So if he just accepted the disclosures on the part of the service providers, it wouldn't meet the terms of the exemption. He certainly can't expect the service providers to judge whether it's reasonable or not, it's not their responsibility. Plus, they would have a conflict situation-- they [service providers] can't be expected to judge their own performance, their own product, or their own work." "Clearly the regulation sets out that it's the responsibility of the sponsor to make the determination." -------------------------- By the way, the 401(k) plans that we provide come with an annual independent benchmark built-in. We are consultants to plans that we are not serving and provide the independent assessment. We can prepare a quote within a day or two.
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Common Mistakes
Just because something is done a certain way by many doesn't mean there is not a better way. The biggest mistake we see is plan sponsors not taking a few moments to understand the difference in the status quo and a plan structure that includes an ERISA 3(38) advisor as we offer. The improvements are vast. When you move to a clean transparent plan that includes an ERISA Section 3(21) and 3(38) advisor - and eliminates 12b-1 fee paying mutual funds - then all the problems occurring inside 99% of the plans, that the DOL Regs attempt to fix just disappear. Plan sponsors that have these type of "clean" plans will have a much easier time dealing with the 2012 regulations. Your fee disclosure to plan participants is simple, clean and reasonable. We encourage all plan sponsors to seriously consider upgrading their plans now. AVOID THE 2012 MESS!!! The new regulations are attempting to "legislate quality" into 401(k) plans. Yet, "quality plans" are available today and we provide them. Avoid the mess! It's completely unnecessary to subject yourself and your participants to it. This is not a one-time event - it's every quarter, every year.
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What to Do Next
Problem Solved: Use an ERISA Section 3(21) independent advisor (RIA) that insists on bringing an ERISA Section 3(38) independent advisor (RIA) with them. They both have strict disclosure requirements built into their licensing so that complete transparency is the norm from day one. They'll be watching each other as well as the TPA, record-keeper and custodian, that are also independent. Multiple checks and balances - a fiduciary wouldn't have it any other way. Call us at 760-804-0910.
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