August 06, 2012
--- The
Department of Labor (DOL) disclosure requirements have pulled back the curtain
on fees paid to service providers by retirement plans, a white paper contends. ---
Calling
the requirements a “Wizard of Oz” moment, in its white paper, “New Disclosure Requirements Pull Back the
Curtain on Retirement Plan Fees,” DCAdvisors said the new service
provider fee disclosures give retirement plans a valuable tool to match fee
structure and service provider relationships to industry best practices while
benchmarking fees to determine reasonableness.
The
paper describes a five-step approach for retirement plan committees that can
mitigate fiduciary risk:
- Ensure timely receipt of fee disclosures;
- Examine fee disclosures for completeness,
comprehensiveness and clarity;
- Determine reasonableness of fees;
- Evaluate and implement appropriate changes in fee
structure or service relationships; and
- Examine implications for plan governance.
Under
DOL Reg 408(b)(2), service providers, including investment managers, recordkeepers,
advisers, trustees and consultants, are required to disclose an
unprecedented level of detail in what they charge directly as well as indirect
revenue received from revenue-sharing arrangements.
The
stakes are huge. An estimated 60 million workers and retirees hold retirement
savings across more than 460,000 employer-sponsored
401(k) plans with approximately $3.4 trillion in assets. At the same time, the
Government Accountability Office (GAO) has determined that more than half of
all 401(k) plan sponsors were either unaware or misinformed about the fees they
or their plan participants were paying on this massive asset pool.
“The
level of detail in these disclosures is giving many retirement plans a ‘Wizard
of Oz’ moment similar to Dorothy’s dog pulling back the Wizard’s curtain to
reveal some surprising truths,” said Dan Esch,managing directorof
DCAdvisors, a Minneapolis retirement plan consulting firm. “What plan sponsors
and their retirement committees do with these new insights will be carefully
watched by the DOL. An inadequate response could lead to financial penalties or
even threaten the qualified status of the retirement plan itself.”
Jill Cornfield