New 408(b)(2) Amendment

Regulators have swooped in, and once again they have come to the rescue of the so-called “bumbling” plan fiduciary that oversees hundreds of millions of dollars through America’s private pension system.

This time, the panacea comes in the form of a 408(b)(2) fee disclosure “guide.” Its purpose: to “strike an appropriate balance between the need to facilitate a responsible plan fiduciary’s review of information important to a prudent decisionmaking process and the costs and burdens attendant to the preparation of a new summary disclosure document,” as taken directly from the proposed rule.

The above reference speaks volumes for plan fiduciaries, service providers and retirement plan advisers.

The March 11 release of the proposed rule is confirmation for many plan fiduciaries that continue to plead ignorance concerning exactly how these darn fees are calculated, collected and consumed.

Plan fiduciaries ponder and, in some cases, question whether they really need to know exactly how every fee in the plan is calculated. The answer to that question is a resounding yes. However, most plan fiduciaries’ reaction has been to seek shelter from the full requirements of fee disclosure, ranging from “I think I can learn about plan fees,” to “Please just show me the annual plan fee in plain English.”

Service providers have demonstrated that they can comply with 408(b)(2) in any number of ways, from statements that are easy to describe and comprehend, to opaque reports that will in no way let fiduciaries have a clue what they are paying. Providers have artfully played a “hide the pea” shell game since the inception of tax-qualified retirement plans. The fact that unwitting plan fiduciaries have been active participants—shills—in this relationship comes as no surprise to legislators, regulators or retirement plan advisers.

What the Guide Provides

The guide is intended for informational purposes only. The Department of Labor (DOL)’s hope is that it will equip service providers and plan fiduciaries with a sound, consistent road map on fee disclosure—that such a document will not drive pricing. That it will not influence investment decisions. That it will not result in eligible employees making decisions to or not to participate in a company-sponsored retirement plan.

However, is such a Rosetta-stone-like document capable of remaining in the background while simultaneously unlocking the mysteries of fees, compensation and services? Is the guide really what is needed in today’s environment?

If the guide ultimately exposes that 25% of today’s 401(k) plans charge 17 basis points (BPS) more than the peer-group average, and consequently millions of participants and thousands of plan sponsors feel duped by the Wall Street bourgeoisie, then what is the benefit of the guide? Because we know there is a coverage deficiency in the American retirement system, the question becomes: What is the point of fanning the flames of destruction on the most successful self-funded retirement system around the globe?

Enter the Plan Adviser

The point has never been the 17-basis-point markup that may occur in a plan; the heart of the matter is the services being delivered in return for those 17 basis points. What if the number is twice that amount—34 more basis points? Is that too much “extra” to pay to offer an employee base a plan that has 90% of its participants on track to replace 80% of their income at age 65?

The guide, as well as the implementation of 408(b)(2), affords every retirement plan adviser a fantastic chance to showcase all of the services that a truly robust retirement plan offers. Advisers who fail to take advantage of their own knowledge base and position—by shepherding clients and prospects through the mayhem of required information currently manufactured by regulators and service providers—are missing the golden opportunity of the times. Never before has an adviser had so much to offer a plan sponsor in need.

Yes, 408(b)(2) guides have been proposed. There is very little redemption in that alone. However, how advisers choose to make use of the opportunities presented by the guides and 408(b)(2) notices is solely up to each individual.