Fee Disclosure Rides Along with Pension Relief

Apparently there’s more than pension fixes tucked away in that new jobs bill moving through the U.S. Congress.

The American Jobs and Closing Tax Loopholes Act (H.R. 4213), expected to be considered by the House this week, also includes provisions regarding retirement plan fee disclosure; provisions that are based on the 401(k) Fair Disclosure and Pension Security Act, according to a statement by Congressman George Miller (D-California), who authored that legislation that was subsequently approved by the Education and Labor Committee that Miller chairs last year.

“Guaranteeing the disclosure of hidden 401(k) fees will give Americans a fighting chance to strengthen their retirement and increase our nation’s future economic security,” said Miller in a press release. “We need to ensure that 401(k)s are run in the best interests of accountholders, not for the sake of boosting Wall Street’s bottom line. I would like to thank Chairman Levin and Congressmen Rangel and Neal for working with the Education and Labor Committee on these important provisions.”

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The bill:,

  • Requires 401(k) service providers to disclose to employers all fees assessed against the participant’s account, broken down into three categories: plan administration and recordkeeping fees, investment management fees, and all other fees
  • Requires the U.S. Department of Labor to review compliance with new disclosure requirements and impose penalties for violations

The bill also requires that:

  • before enrollment, workers would receive information to help them understand  investment options by providing basic investment disclosures, including information on risk, return, and investment objectives
  • a worker’s quarterly statement list total contributions, earnings, closing account balance, net return, and all fees subtracted from the account
  • workers “receive clear information on the name, risk level, and investment objective of each available investment option before enrolling in a 401(k) plan”
  • fees be disclosed for each investment option the employee invests, expressed in dollars or as a percentage

The bill would also make what Miller described as “important, but modest adjustments to funding requirements so plan sponsors will not have to choose between making forced cash contributions, freezing plans or cutting jobs.”  Among other provisions, H.R. 4213 is an adjustment to the amount of time a plan can make up losses over time and relief on funding-level restrictions (see House Bill Carries DC Disclosure Requirements).

IRS Provides 401(k) Compliance Check Details

The Internal Revenue Service (IRS) said a random sample of 1,200 401(k) plan sponsors will be notified this week that they have been selected to fill out an online compliance check questionnaire.

An IRS news release about the initiative, announced earlier this year (see “IRS to Mail 401(k) Compliance Questionnaires“), said results of the Web poll would help the tax agency better target its oversight efforts over the retirement savings plans.

“The information gathered from the Questionnaire will provide a comprehensive view of 401(k) plans and will help (the IRS) maximize its resources for education, outreach, guidance and enforcement efforts while minimizing the burden to compliant plan sponsors,” the IRS said in the announcement.

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Coordinated by the IRS Employee Plans Compliance Unit (EPCU), the survey seeks plan information on:

  •  Demographics 
  •  Participation 
  •  Employer and employee contributions 
  •  Top-heavy and nondiscrimination testing 
  •  Distributions and plan loans 
  •  Other plan operations 
  •  Automatic contribution arrangements 
  •  Designated Roth features 
  •  IRS voluntary compliance and correction programs 
  •  Plan administration 

The tax agency said sponsors will only be asked to supply information specifically pertaining to their plan’s features; sections of the online survey document not applicable to the plan should not appear as the sponsor completes the requested answers. Each sponsor will also receive a paper copy of the survey with instructions to help formulate the plan’s online responses, the IRS said.

While noting that the effort was not a formal IRS audit, the agency said failure to respond or provide complete information will result in further action or examination of the plan.

Filing Out the Survey

Other instructions offered by the IRS include that sponsors should:

  • Answer the questions for the specific plan referenced in the cover letter, not including controlled group or affiliated service group members.
  • Unless otherwise indicated, provide responses as of the end of this Plan’s 2008 plan year.
  • Provide the most complete and accurate answers possible. Be sure to limit responses to the information requested and do not send books or records.
  • When completing questions which ask for dollar amounts or percentages, round the amounts to the nearest dollar or percentage unless otherwise instructed.
  • Click on “Save and Continue” to save responses for a particular page.
  • When returning to the Questionnaire to continue responding, navigate to the page where answers were most recently provided  by clicking “Save and Continue.” 
  • In some cases, a particular response to a question will cause follow-up questions to appear. These follow-up questions must also be answered before proceeding to the next page.

More Details

General information about the survey, including a list of frequently asked questions and a glossary, is available here.

A copy of the survey is here and instructions on how to complete the survey are here.

Questions about the survey should be addressed to EPCU@irs.gov with "401(k) Plan Questionnaire" in the subject line.

 

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