New Fee Disclosure Rules – Both a Requirement and an Opportunity

If you sponsor a qualified retirement plan for your employees, such as a     401(k) Plan, 403(b) Plan or even a plain old Profit Sharing Plan that allows for participant investment direction, new fee disclosure rules will be in effect starting with the Plan Year beginning on or after November 1, 2011.  The Department of Labor (DOL) has provided specific guidance on what must be disclosed and how.  But the bottom line is that starting in 2012 (for most plans), participants will see, in detail, any fees charged to their account.   

So how should Plan Sponsors prepare for this change?  Ask your investment advisor -

• Do my participants see fees on their statements now?  If not, what will they see in the future?  Can you provide me with sample language in advance?
• Will you prepare advance communication to participants explaining fee disclosure?  Will you have a variety of educational materials to help participants understand what this means to them?
• What responsibility do I, as the Plan Sponsor, have in making sure my participants are receiving the correct fee disclosures?  How will you help me with this?

 

As a Plan Sponsor, consider how participants will perceive these new disclosures and how you can educate them to understand the new information they will receive.  After all, these fees aren’t new.  But up to now, fees may not have been disclosed.  It’s important for participants to understand that fees have always been a part of plan accounts and that their disclosure is meant to help them make more informed choices about their investment options.  Don’t let participants use the appearance of fees on their statements as a reason to stop saving for retirement!  

No participant likes to see a negative number on their Plan account statement.  No participant wants to be confused about what is happening with their retirement savings.  So we recommend that Plan Sponsors take the initiative with their vendors and service providers to explore what impact the new DOL participant fee disclosure regulations will have.  The best defense is a good offense.  A Plan Sponsor may have to dedicate more time and resources over the next few months to develop an education campaign (group meetings, educational fliers or payroll stuffer, etc.) to help participants understand the various types of fees that may be charged to their accounts.  But more importantly, Plan Sponsors can help participants understand the value they receive and how the fees they pay compare on average to other similarly situated Plans. 

In the end, your participants may never like seeing fees on their statements and may not value receiving all of this new information, but they will appreciate the effort that their employer puts into making sure they understand what their Plan is all about and its long-term benefit.   

From my experience with our clients, Plan Sponsors genuinely care about helping employees save for a financially secure retirement.  So when the government is (yet again!) forcing Plan Sponsors to comply with a new set of rules, the savvy Plan Sponsor will use the opportunity to build trust and confidence with their employees.

 

Lisa A. Showalter,  Partner