After many years in the works, the Department of Labor ("DOL") finalized its highly-anticipated fee disclosure regulations yesterday. These new rules, referred to as the 408(b)(2) regulations, were slated to take effect on April 1st; however, due to the delay in finalizing them, the DOL has postponed the effective date until July 1, 2012.
What Is The Purpose of the New Rules?
Those who create and maintain retirement plans for their employees are known as plan fiduciaries. These fiduciaries have long had a legal obligation to ensure the fees being paid to plan service providers are reasonable in light of the services the plan receives. This includes not only the amounts paid "out of pocket" but also amounts deducted from participant accounts or netted against investment returns. The catch is that service providers have not had a legal obligation to disclose that information.
As investment products have become more complex it has become increasingly difficult for plan fiduciaries to understand all of the costs and, therefore, more challenging for them to fulfill their legal obligation. The complexity has also made it possible for certain providers to get paid substantial sums through hidden fees while promoting their services as being low cost or free.
The new fee disclosure regulations make it mandatory for "covered service-providers" to disclose their fees to plan fiduciaries in writing in advance.
What Should You Expect?
Many plan service providers such as recordkeepers and investment professionals have already been diligently working on documentation that will satisfy the new rules. Some will choose to meet the requirements by sending out new service agreements, and others will disclose the necessary information via separate documentation. Either way, the required fee disclosure must be in the hands of plan fiduciaries by this summer.
What is DWC Doing to Comply?
Since DWC is compensated directly and does not receive revenue-sharing payments from investment products or platforms, we are not considered a "covered service provider." Therefore, we are not subject to the new disclosure rules. With that said, DWC has always believed in making our fees completely transparent. The service agreement format we implemented for the 2011 plan year lists all of our services and the related fees in a quick, easy-to-read chart. Prior versions of our service agreement fully disclosed all fees but did not include the chart. As such, we will be updating all pre-2011-plan-year service agreements over the next few weeks. Clients that first hired us prior to 2011 should be on the lookout for their updated agreements no later than mid-March.
As always, please do not hesitate to contact us if you have any questions or if we can be of assistance.
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