For the last year or so that the Department of Labor has been trying to implement the 408(b)(2) fee disclosures, we hear about a lot of retirement plan providers (including yours truly) about the coming storm and how fee disclosure will create opportunity for some providers and some anguish for a few. We have talked how this will certainly be an eye opening event for plan sponsors who have sworn for years that they pay nothing for administration.
But one of the problems that I see with fee disclosure is that I don’t believe that plan sponsors are ready for it or are ever going to be ready for it. There are too many plan providers who don’t do a lot of hand holding for their clients and kind of just drop things on clients without mentioning their importance. So I am wary that there will be some plan providers who will just send their fee disclosure mailing to their clients without really explaining what these disclosures are and what plan sponsors will do with them.
Plan sponsors have important jobs to do with fee disclosure and many are unaware of it. It’s not as simple as getting a fee disclosure form and putting it in the back of the drawer. Plan sponsors have some serious tasks such as making a listing of all service providers and identify which ones qualify as a provider required to provide disclosures. Plan sponsors will need to confirm all disclosures are received and presented to plan fiduciaries. They will also need to confirm that all covered service providers have furnished reports and that the reports contain sufficient detail to enable them to assess the reasonableness of their fees. If a covered service provider fails to provide the disclosure, or sufficient detail in the disclosure, the plan sponsor must notify the provider and consider terminating the arrangement or even notifying the Department of Labor. Plan sponsors will actually have to determine whether the fees are reasonable by shopping it around, perhaps as formal as sending out a request for proposal.
These are important tasks, are the service providers letting plan sponsors know what their role is? I’m sure quite a few are and quite a few aren’t. I just worry because plan sponsors have a fiduciary responsibility to comply with the 408(b)(2) regulations and they could be breaching their duty by sitting back, doing nothing, and leaning on their plan providers just to disclose their fees. The onus will be on the plan sponsors to determine whether the fees are reasonable and you can’t do that by sitting back and doing nothing.
If you are a service provider and need help in formulating agreements or disclosure forms to sponsors for 408(b)(2) or education for plan sponsors, you know where to find me.