Hosted by PLANADVISER and sponsored by BlackRock, Marcia Wagner of The Wagner Law Group covered five key topics for advisers to prepare for as the new year approaches: 1) fee disclosure to participants, 2) 408(b)(2) disclosures, 3) broader “fiduciary” definition, 4) investment education versus advice and 5) strategy and fiduciary pointers.

“The DoL is continuing to work very closely with the White House and its middle class task force,” said Wagner. “Given the unprecedented level of White House involvement in these rules, it is important to remember they are designed to make strategic improvements in 401(k) arena – they are not being issued haphazardly or in isolation from one another.”   

When it comes to all of these topics, Wagner believes “advisers can demonstrate their value by helping sponsors get through 2012 as the DoL rolls out new rules one after another.”

1) Fee disclosure to participants. The DoL issued the final regulations on October 14, 2010. The Department explained that the existing law did not require plans to provide necessary information, whereas the new rule requires clear comparisons of a plan’s investment options.  The new regulations apply to defined contribution plans with participant-directed investments and it covers plans even if it is not designed to comply with ERISA Section 404(c). Additionally, the new regulation applies to all eligible employees, not just those enrolled in the plan.

What needs to be disclosed? Wagner explained that there are two parts to the disclosure requirements; some must be made on an annual basis, others on a quarterly basis.  Annually, participants must receive an explanation of general administrative service fees and individual expenses. Quarterly, the plan must disclose dollar amount of fees and expenses charged to participant accounts. This all must be outlined in a comparative format for all eligible employees to understand (see “DoL Discusses Participant Fee Disclosure Regs”).

2) 408(b)(2) disclosures. “Sponsors are aware of the fees invoiced to providers,” said Wagner. “But they are unaware that this is the tip of the iceberg. [Providers] get fees from investment funds. So administration of a plan might look free, but the participants are paying fees through the investment selections.”   

The Department’s goal of 408(b)(2) “is to make sure workers and plan sponsors are getting services at a fair price,” she explained. The regulation is still in its interim final format, but it is expected that a final version will come out before the end of the year.

Wagner said some points to remember for advisers regarding 408(b)(2) include:

•  Disclosure must be made reasonably in advance of starting or renewing services
• Changes to info must be made no later than 60 days after provider becomes aware of change
• Erroneous info will not result in violation if provider has acted in good faith and with diligence
• Errors and omissions must be disclosed within 30 days after coming to light

3) Broader “fiduciary” definition.  The DoL’s strategy is threefold, according to Wagner: roll out new fee disclosure rules, impose fiduciary status on more providers and force non-fiduciary advisers to make disclaimers.  The original proposed changes were retracted in September and the industry is anxiously awaiting a re-proposal (see “EBSA to Re-Propose Definition of Fiduciary Rule”).   

4) Investment education versus advice. The purpose of this rule is more clearly define what qualifies as education for participants and what constitutes advice. The DoL says an advice program should be in addition to education program, and sponsors should have three choices: education only (with no advice); education and non-discretionary advice; or education and discretionary advice.

Wagner said it is worth noting that a “provider of education” is not necessarily a fiduciary. The DoL has said there are four safe harbors for non-fiduciary education: plan information (e.g. plan terms, menu information); investment information (e.g. financial concepts, risk tolerance); asset allocation models; and interactive materials (e.g. worksheets).  Investment advice, on the other hand, is an opportunity for advisers willing and able to assume fiduciary responsibility.

For more, see “EBSA Aims to Improve Access to Unbiased Advice.”

5) Strategy and fiduciary pointers. Wagner concluded the BlackRock-sponsored webcast with the following pieces of advice:

• Investment duties under ERISA are procedural, so be sure to follow a deliberate process
• Develop separate fee policy statement for fiduciary review of investment and administrative fees
• Benchmark fees annually
• Put plan out to bid every three years
• Be proactive in reviewing plan’s menu (including investment fees) quarterly
• Encourage plan sponsors and fiduciaries to investigate their liability protection (bonding, indemnity)
• Determine whether and for what purposes the adviser will be a fiduciary (e.g. nondiscretionary 3(21) vs. discretionary 3(38))