July 2, 2012
Now that the July 1st deadline for Covered Service Providers (“CSP”) to provide their §408(b)(2) fee disclosures to plan sponsors has passed, employers are now “on-the-clock”.
As we have previously stated, CSPs only obligation under the new law is to provide the required disclosure. It is the employers (a.k.a. Plan Sponsors and Trustees) who have the burden of knowledge and an obligation under the law to act upon these disclosures in order to avoid causing the plan to engage in a Prohibited Transaction.
At a bare minimum, employers must execute the following 6 steps.
1. Determine which service providers should be providing disclosures
2. Document receipt of disclosures BEFORE July 1, 2012
3. Confirm disclosures contain sufficient information to properly evaluate fees
4. Mail letter to all service providers who either failed to deliver their disclosure or who delivered an insufficient disclosure
5. Compile and aggregate fee data contained in the disclosures
6. Make a formal and documented determination that the services being provided are necessary, the contract or service agreement is reasonable, and the fees being paid to and the compensation being received by the CSPs are not excessive
Given that this is the first time that corporate retirement plan service providers (defined benefit, 401(k), profit sharing, etc…) have been obligated to tell the truth, the whole truth, and nothing but the truth about the fees they are charging and the compensation they are receiving, disclosure offers up a significant opportunity for employers to reduce plan fees upwards of 60%, enhance the quality of plan services, and improve participant outcomes (i.e. more money at retirement).
Unfortunately, the high internal cost of senior financial or HR staff’s time and energy may serve as a deterrent to devoting the man hours necessary to assure proper compliance. However, given the threat of a Prohibited Transaction, compliance is NOT optional. This is reinforced when one considers the potential for complaints or civil action initiated by employees (60%-70% of whom think their 401(k) is free) when participant level fee disclosures are distributed in August 2012.
While the new fee disclosure laws are explicit in that employers cannot delegate the fiduciary duty to determine whether retirement plan fees are reasonable, one can delegate the administrative and documentation functions required to for compliance. However, the final act of determining if the CSP’s services are necessary, the agreement reasonable, and fee/compensation are not excessive reside with the employer and cannot be delegated to their attorney, accountant or any other third party
Copyright 2012 – Fiduciary Firewall Consulting, Inc., Waterford, MI – All Rights Reserved
About FeeInsight.
FeeInsight. can help you or your client’s attain a documented level of compliance and identify potential cost savings for significantly less cost than doing it in-house.
For $750 (plans under $10MM) Fee Insight provides an analysis and benchmarking of plan fees relative to peer group averages and the absolute baseline internal fiduciary cost of plan operations. This measurement and the accompanying documentation templates provide the information you or your clients need to properly evaluate plan services, fees, and compensation as required by the new fee disclosure regulations.
For more information visit www.FeeInsight.com
Contact
Brian S. Lakkides, AIF® is the Founder and Managing Director of Fiduciary Firewall Consulting, Inc. (www.FiduciaryFirewall.com), an independent fiduciary risk management and compliance firm headquartered in Waterford, Michigan. He also serves as the Regional Managing Director-Great Lakes Region for Fiduciary Plan Governance, LLC (www.FiduciaryPlanGovernance.com). For information about Fiduciary Firewall’s FeeInsight., FiduciaryInsight., or Total Fiduciary Solution 401(k). contact Brian at (248) 330-4490 or BrianL@FiduciaryFirewall.com.
