The clock is ticking toward 408(b)(2) regulation implementation for fee disclosure to plan sponsors by July 1 and to plan participants for participant directed plans 60 days later.
Fee disclosure will forever change the landscape of the retirement plan industry, but it will take some time to figure out the fallout. Like a good disaster movie (thanks Irwin Allen, but no thanks for The Swarm, Beyond the Poseidon Adventure, and When Time Ran Out….) , it will take some time to figure out the winners, the losers, and the casualties.
For me, the biggest casualties will not be insurance company providers or certain third party administrators, but plan sponsors who are unaware of their duties under 408(b)(2) and 404(a)(5). Plan sponsors are unaware that if their providers don’t provide the disclosure, they have to fire the providers and be possibly at risk of the service contract being declared as a prohibited transaction. The 404(a)(5) regulations are even scarier, because the plan sponsor is fully blamed for not providing it. How many plan sponsors will be in trouble? Quite a few, but it will take some time to figure it out.
July 1 and September 1 are like the eye of a hurricane, it’s incredibly safe because the damage is either ahead or behind as the hurricane comes through. It will take some time for plan sponsors to discover their errors and it will take some time for the Department of Labor to audit plans to determine compliance with the fee disclosure regulations. Like a good conspiracy to steal retirement plan assets, it will take some time for non-compliance to the fee disclosure regulations to comply.
So while people are focused on the negative effect that fee disclosure may have on some plan providers, there will be far more plan sponsors that will feel the wrath of non-compliance with the fee disclosure regulations.