DOL asks for comments on 401(k) fee disclosure guide

The Department of Labor requested public comments this week on a proposal to amend its 408(b)(2) fee disclosure regulations to require service providers to provide plan sponsors with a guide for navigating fee disclosure documents.

“We are concerned by the fact that some employers who are fiduciaries are having a really hard time locating the required fee disclosures when they’re embedded in these lengthy or complex documents,” said Phyllis Borzi, assistant Secretary of Labor for Employee Benefits Security during a conference call.

In 2012, the DOL published a final rule requiring that companies that provide certain services to employer-sponsored 401(k) plans give employers detailed information about the services and the compensation they receive, including payments from third parties. The rule allows vendors to use existing contracts and other documents to provide this information to plan fiduciaries.

“We would amend the [408(b)(2)] rule to require service providers who use overly lengthy documents, or multiple documents, to furnish the plan fiduciary a roadmap, or a guide,” said Borzi. “This will help the plan fiduciary locate specific information within those documents, such as what the compensation a service provider is receiving, for recordkeeping fees, for instance, and what the sources of income are for the service provider, including whatever payments they’re getting from third parties.”

The guide would identify the specific documents in which the information is disclosed, as well as page numbers or other identifying information so that plan fiduciaries can quickly find the information.

Vendors would be on the hook for providing the guide either in hard copy or electronic form. “I felt encouraged the DOL is specifically asking for advice on how to share this information effectively electronically,” says Robert C. Lawton, president of Lawton Retirement Plan Consultants. “I think that would be a big, positive step in the right direction.”

The guide would not be required for all disclosures, said Borzi, only those for which a threshold requirement is met. “The threshold requirement is if the service provider chose to provide multiple documents for all these fees, or provides it in a single document that exceeds specific page limits,” said Borzi, adding the DOL is looking for comments on what the specific threshold should be before the requirement for the guide is triggered.

Borzi also announced a series of eight to 10 targeted focus groups with small employers — those with fewer than 100 participants — so “we’ll be able to get direct feedback in a simple, direct, straightforward way about their experiences with the new 408(b)(2) rule.” Overall, the focus groups will entail feedback from about 70 to 100 small-plan fiduciaries, she said.

“We hope we’ll better understand current practices, the effects of our 408(b)(2) regulations have had on this disclosure from the service providers to the fiduciaries, and may provide valuable information to us on the need for a guide, or what a guide should look like and how it should be structured,” said Borzi.

The proposed rule will be published for public comment in the March 12 edition of the Federal Register. The text is available here www.dol.gov/find/20140311/

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