Comments Endorse Fee Disclosure Flexibility, Additional Compliance Time

A selection of the 44 comments received by the U.S. Department of Labor (DoL) about its pending fee-disclosure rule shows broad support for the rule’s intent, but continued pressure for more regulatory flexibility and time to comply.

A number of the commenters submitting to the DoL’s Employee Benefits Security Administration (EBSA) touched on the issue of whether those covered by the rule being required to comply on an EBSA-prescribed form would prove overly costly or too difficult to develop within the rule’s time frame.  Retirement services products come in so many different sizes and varieties and change so frequently that a hard-and-fast rule as to the form of the fee disclosure may end up doing more harm than good, some submitting comments asserted.

“While we do not oppose the notion of the Department requiring that information provided to plan fiduciaries include a summary of this type, it is critical that any requirement for a summary in the final regulation be workable,” wrote Mary Podesta, Senior Counsel Pension Regulation, Investment Company Institute (ICI). “The regulation covers many different kinds of services and even within a narrow band of services like 401(k) plan recordkeeping or brokerage, the arrangements will vary. No one form or format could cover all of these arrangements without an extensive, detailed rulemaking record.”

Podesta said potential problem areas because of a required disclosure form would include:  403(b) plans; brokerage windows; insurance and annuity fees; broker compensation received from multiple investment firms; investments like employer stock funds, limited partnerships, and service structures like joint ventures.

Douglas O. Kant, Senior Vice President and Deputy General Counsel, Fidelity Investments, agreed with Podesta. “The Rule’s requirements will impose significant development efforts and therefore costs to service providers, especially recordkeepers who have additional responsibilities under the Rule to report fees related to options which they record keep,” wrote Kant. “A requirement to include all disclosures in one document or other required format would substantially increase those costs. Further, if the recordkeeper uses disclosure materials of the issuer to meet its requirements for designated investment options, it would be impossible to comply with a one document requirement.”

Others submitting EBSA comments complained that the rule still did not adequately address how providers would comply with required disclosures for certain types of products including annuities and stable-value offerings.

As Kant pointed out with stable-value products with a fixed return rate, there is a question about whether fees are even relevant to plan fiduciaries. The Fidelity official also called for additional EBSA guidance about required disclosures on limits on plan fiduciaries about getting out of stable-value products if the fiduciaries find a new rate to be “noncompetitive.”  



Electronic Compliance 

R. Gregory Barton, Managing Director Institutional Investor Group, The Vanguard Group, called for a clarification that providers won’t necessarily have to provide written information in order to comply.

“Plan sponsors and their service providers are accustomed to dealing with one another through email and other electronic communications,” Barton contended. “Our experience as a service provider has been that plan sponsors prefer that we communicate with them electronically and leave it to their discretion to determine which materials may be reviewed in electronic form and which are more easily reviewed in printed form.”  

Finally, several commenters called on EBSA to put off the rule’s effective date to give providers additional time to in which to comply. “Considering the need for new disclosure procedures, systems changes, staff training, and client discussions, even good faith efforts to comply with the new rules for existing clients may not be finished by July 16, 2011,” Kant wrote for Fidelity. “We ask the Department to extend the deadline for disclosure to existing clients under the new 408(b)(2) regime to December 31, 2011.

A group of key lawmakers who also commented called on  EBSA to retain the simplicity of any required fee disclosure (see Lawmakers: Keep 408(b)(2) Disclosures Simple). One industry group endorsed a change to the defintiion of covered service providers (see ASPPA Suggests Change to Providers Covered under Fee Disclosure Regs).

The public comments and additional information about the rule are available at