Fee Disclosures Can Be Useful Tool for Plans

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.”