Stand up to scrutiny: your action plan for new 401 (k) transparency rules.

• Author: Bennett, Brent R.
• Position: Money Talk

On October 14, 2010, the retirement game changed with the passage of 404(a)(5), the Department of Labor's (DOL) overhaul of transparency and the employee nest egg. As a result, beginning in April 2012, fees will now be clearly posted as a dollar amount on each participant's quarterly statements.

In the past, retirement plan statements shared the net return only but did not disclose all internal administrative fees charged to the participant. In fact, many participants and even some plan sponsors honestly still believe there are no fees in their 401(k) plan. Or, even worse, participants may think the company pays all the fees when in reality the majority of fees are passed through to employees.

The new DOL regulations make retirement plan fees completely transparent, and with these changes come heightened awareness, which can be a positive or negative depending on how the employer embraces these new disclosure rules.

Substantiate Your Decisions

As participants review their retirement statements, new concerns will start pouring in. With the additional passage of 408(b) (2), the plan sponsor must be ready to substantiate decisions they've made with regard to related fees. These questions will ultimately put increased scrutiny and fiduciary responsibility on the employer, who will need to more closely monitor and document their relative plan performance, advisor selection, plan provider and appropriateness of fees.

While the fees and rules havent changed, employers will need to have documentation ready to support their research and due diligence process, which makes working with a competent advisor that much more important. The DOL "Look at 401 (k) Plan Fees" report discusses the fee minutia that is expected to spur employers into a proactive mode.

The fact that fees in dollar amounts will be disclosed and communicated on 401(k) statements versus only fee percentages will require honest and strategic communications. Many large and some small employers with proactive retirement policies are already doing this. However, as participants compare notes with friends and relatives at other companies, there will after be huge fee disparities.

It is difficult for employers to define or claim that fees charged to a plan are "reasonable." There is and will continue to be greater scrutiny placed on the employer to ensure that every attempt was made to identify and understand administrative fees and expenses related to the plan investment and that decisions...