IMHO: Service Charges

As Valentine’s Day looms, you have perhaps seen those increasingly ubiquitous advertisements for a certain online florist.


Now, I’ve used that particular service on many an occasion over the past several years; they are not only convenient, they deliver a quality product, and on time (yes, some “assembly” is required).  In sum, I’ve used them before and will doubtless use them again. 

That said, if you’ve been lured to their Web site by their ads touting a dozen roses for $19.99—well, let’s just say you could be in for a surprise.  See, that advertised price doesn’t include a vase (well, not a pretty one, anyway), the delivery charge (which, depending on when you want it delivered, adds another 50%, or more, to the price), not to mention the standard “care & handling” charge of $3 (regardless of when you want it delivered).  A guaranteed morning delivery on Valentine’s Day is another $15.  Oh, and if you’ve procrastinated until the last week or so, you’ll find an additional $9.99 charge for “guaranteed Valentine’s Day delivery.”  In sum, depending on when you get around to ordering those $20 roses, you could easily wind up spending three or four times that amount (but, hey—what’s it worth to you to stay in your sweetheart’s good graces?).  And, most of that disclosure doesn’t happen until the screen right before you place your order. 

Of late, I have been talking about 2011 as “the year of disclosure.”  It’s the year when I think most plan sponsors will begin really looking at those new 5500 disclosures, perhaps alongside those newly minted 408(b)2 disclosures (or would have until Friday’s announcement from the Labor Department that the deadline was being pushed back six months (see “EBSA Sets New 408(b)(2) Deadline for January 2012”).  Additionally, the issue of participant fee disclosure is back on the table, an outcome that will surely heighten the focus of plan sponsors on the issue.

The question, of course, is what will plan sponsors DO in response?  For years now, there has been an undercurrent of thought that, once they saw what they were paying (and to whom), plan sponsors would rise up and demand change and/or a change in providers.  Advisers would lead this charge, armed with these expanded disclosures, and the federal government would even play a role by not only mandating these disclosures, but providing plan fiduciaries with some “sticks” to spur compliance by reluctant providers (personally, I’d just find some new providers, but…).  Indeed, all of this is being brought to bear at the same time, and the prospects for expanded, if not enhanced, disclosures seem bright.

Interestingly enough, these disclosures don’t really change the obligations or responsibility of plan fiduciaries to ensure that the fees paid and services rendered to the plan are reasonable.  Indeed, most of the burden for disclosure falls on those who provide services to the plan, not the plan sponsor.  That said, once the plan sponsor/fiduciary is apprised of such things in black and white (not to mention the Labor Department via the Form 5500), IMHO, it will be a lot harder to profess ignorance of such things. 

Ultimately, I think those who provide services to these plans will be more thoughtful about the services they offer and what (and how) they charge for those services, and surely some will decide to no longer offer those services in this market and/or at those prices.  Surely it will be easier—at least eventually—for advisers to help plan sponsors make apples-to-apples comparisons of services and costs, to make a more thoughtful—and prudent—determination. 

That doesn’t mean that plan sponsors will act on that information.  But then, if the process of disclosure has the kind of antiseptic effect we might hope it could have on the business of fees charged, then it’s entirely possible they won’t have to.