Next Steps?

Some advisers say certain issues got overlooked in the FAQ about fee disclosure in the field assistance bulletin recently issued by the Department of Labor (DOL).

In response to the many questions surrounding the upcoming fee disclosure regulations, the DOL issued Field Assistance Bulletin 2012-02, in Q-and-A format, addressing the types of covered plans, administrative expenses, brokerage windows and investment-related information, among other topics.

Some advisers say the guidance is helpful—yet, they still have some concerns.

Brian Giles, senior client relationship manager with White Oak Advisors, says one of his biggest concerns for plan sponsors is the lack of a required format for fee disclosure. Giles told PLANADVISER, “Each covered service provider can select [its] own format—and the disclosures can run 10 to 15 pages in length.” The DOL indicated they would consider a summary document, but they backed off; so service providers can elect to disclose information about fees in whatever format they choose.

“When plan sponsors don’t clearly understand what they’re being presented with, there’s uncertainty, in our minds, that they will understand what the total fees are, in aggregate,” he says.

Jim Robison, an adviser and principal of White Oak Advisors, thinks the regulators have addressed persisting questions in the industry and calls the examples in the bulletin helpful. But he is concerned the fee disclosure regulations have no requirement for a summary, and therefore, no succinct statements will accompany the disclosures.

“Some of the DOL’s tactical responses do help plan providers to better understand the regulations,” Robison says, “[but] that bow on the package would be a clear summary of the fees embedded in the report itself and a template that allows for a fairly quick assessment of the reasonableness of the expenses.”

Robison notes that most plan participants recognize that expenses arise from providing various services, but “there’s no great and succinct way to quantify” them. In addition, the time it takes to comply will likely result in increased fees, at least temporarily. “When the disclosures take effect,” he predicts, “[there will be] some level of additional expense that should lessen as time goes on and people become more familiar with the templates.”

Time will tell if service providers have created usable forms. The templates might be more of an issue at the non-national service provider level, Robison says. Multinational benefits firms probably have created a uniform template. It is less likely that the independent shops—non-national providers and third-party administrators—have developed uniform templates, he says.

“There are a lot of impediments to trying to standardize,” Roberta Ufford, a principal with Groom Law Group, told PLANADVISER. The DOL had talked about it, and proposed a summary format in February, Ufford says, but no standardized form was created. When the department attempted a service provider form, it was never used, Ufford says, “because it tried to be all things to all people.”

Standardized reporting of information was intended to make it easier for plan participants to compare plans. “Most providers are doing slightly different things, but they are sticking pretty closely to safe harbor versions of the forms,” Ufford says. “The participant level disclosure was difficult enough. It’s very difficult to standardize across so many types of providers.”

The regulations undoubtedly mean more details for sponsors to stay on top of. “It’s clear from the DOL that, upon receiving fee disclosure information, the plan sponsor must make sure that all required pieces are embedded in the disclosure,” says Giles. “If something is missing, sponsors have 90 days to work with the service provider to correct the information and, if not corrected in time, they are obligated to fire that service provider. Otherwise, the plan sponsor is out of compliance.”

Another note of caution is for plan sponsors of Employee Retirement Income Security Act (ERISA) 403(b) plans that receive notices from multiple providers and then must consolidate these in one mailing to participants. It will mean time and effort on those sponsors’  part. “[The situation is] fraught with enough ‘what ifs’  that it will be fairly easy to trip that noncompliance wire,”  Giles says.

Part of sponsors staying compliant with 404(c) of ERISA, Giles adds, is compliance with participant fee disclosure. “Many plan sponsors rely on 404(c) protection for investment decisions made by participants. Certainly plan sponsors need to keep their eye on that.”

The requirement for all information to be gathered into one envelope for mailing still holds when multiple service providers are utilized. It means plan sponsors have to collect notices individually and mail them at the same time.

“Another concern for sponsors is the fact that it’s going to be difficult to provide participants with notices electronically,” Giles says. “Most plan sponsors will have to rely on mail to get participant disclosures out there. It just means time and cost to get it done.

“Some people would like the DOL to relax the restrictions on electronic transmission for disclosures,” he adds. “The regulations require an employee to opt in for electronic disclosure. For the typical plan sponsor, most participants have not made the affirmative election to receive electronic disclosures.”

The DOL wants participants to be able to make educated decisions with all the information in front of them at the same time, Robison explains. “I can understand it, but the practicality is it’s a lot of work on their part to make that happen.” 

The regulations may build some momentum within the industry, Robison says, and could provide an opportunity for change. “From a tactical perspective, enough questions have been answered. Generally speaking, we’re pleased with the points of clarification in the bulletin,” he says.