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ERISA Retirement Plans: Enhanced Fee Disclosures Coming Soon – Are You Prepared?

The Department of Labor has issued a series of rules that will dramatically change the amount and type of information that will be available related to fees paid by various employee retirement plans. These new rules will require enhanced disclosures beginning in 2012. These disclosures can be categorized in two general areas:

  • Enhanced Service Provider Fee Disclosures
  • Certain Participant-Level Fee Disclosures

The Department of Labor administers a variety of laws to protect the retirement benefits of workers. These enhanced disclosures are anticipated to help achieve this by providing more information to plan participants. 

Service Provider Fee Disclosure Requirements

Beginning in 2012, companies providing certain services to retirement plans (e.g., investment advisors, investment custodians and third-party administrators) are required to furnish additional disclosures to plan sponsors. The required information is designed to help plan sponsors determine 1) what fees are being paid by the plan, and 2) whether those fees are reasonable. These disclosures are required to be provided to plan sponsors prior to April 1, 2012. Plan service providers are required to disclose the specific services that will be performed, the responsibilities they are assuming (i.e., fiduciary responsibilities), and their expected fees, prior to entering into a contract to perform services on behalf of a plan. The required disclosures include: the amounts of direct and indirect compensation, details of any fee sharing arrangement, fees due at contract termination, amount of fees expected for recordkeeping services, how fees will be paid, etc.

Plan sponsors have a responsibility to determine, in advance, whether a contract and fees for services is reasonable. If the plan enters into an “unreasonable” contract – which includes a contract where the plan fiduciary does not have the appropriate information to make a determination that fees are reasonable – this may result in a prohibited transaction and subject the plan fiduciary to penalties and additional reporting requirements.

Participant-Level Fee Disclosure Requirements

Recently issued regulations require increased annual and quarterly fee disclosures to participants in a participant-directed retirement plan. By May 31, 2012, the initial annual disclosures must be provided to participants and must include information related to the fees that may be charged to the participant during the year, both on a plan-wide and an individual basis. Going forward, this information is required to be provided before a participant first has the opportunity to direct his or her investments under the plan, and annually thereafter.

Additionally, plans are required to provide participants with quarterly statements outlining the nature and the dollar amount of the fees the participant was actually charged during the preceding quarter. The first set of quarterly statements must be provided by August 14, 2012 (for the quarter ending June 30, 2012) – subsequent statements are required within 45 days following the end of each quarter. Plan sponsors should work with their service providers now to ensure the information is available and the mechanisms in place to meet these disclosure requirements.

What You Should Do Now

To ensure compliance with these new regulations, plan sponsors should begin to work with plan service providers now to ensure that the increased disclosure information is available and that the proper mechanisms are in place to meet these requirements.

This process will be a more cumbersome for plan sponsors with benefit plans that have multiple custodians and third party administrators.

For more information about these new requirements, please contact Michael Krucker (on the sidebar of this page) or Carrie Mendoza at 248.375.7265.

Contact Us

Michael Krucker

248-375-7822