Kaplan Financial Advisors, LLC

Big Changes in 2012 That Affect You!

Beginning July 1, 2012, the Department of Labor Regulation 408(b)2 will require plan providers (companies who provide various elements of tax-deferred plans to employer firms) to disclose fee information to 401(k) and 403(b) plan sponsors (employers who offer these plans to their employees). 

The 404(a)5 Regulation that requires disclosure of all fees to plan participants goes into effect on August 30, 2012.  This regulation requires fees be broken out clearly on plan participant quarterly statements by Q3 2012. For example: Your plan balance deducted these fees last quarter: a) $650 for advisory fees (although perhaps you rarely or never see this advisor?), b) $213 for third party administration and record keeping, c) $705 for underlying annual expense ratios for the mutual funds you're invested in, etc.

Disclosure of previously hidden fees is good for plan sponsors - as long as they can demonstrate their 401(k) plan has "reasonable and appropriate fees." 

In sum, regulations 408(b)2 and 404(a)5 mean:

1. Plan service providers will be required to submit detailed disclosures about fees to plan sponsors - the onus is on plan sponsors to verify they've receive vendor disclosures, examined them and determined if the contents are "reasonable."
2. Disclosure is required for service providers in plans who expect $1,000 or more in direct or indirect compensation.
3. Plan participants will no longer be in the dark about undisclosed fees.

Plan service providers will be required to disclose to the plan fiduciary – in writing:

• A description of services provided
• If the service provider supplies any services as a fiduciary
• What those services are
  • Discussion of all direct and indirect compensation
  • A statement about compensation paid by related parties

How Will This Affect You?

• If you’re a plan sponsor or plan participant, you’ll become fully aware of fees you're paying (my observation is that plan sponsors typically are unaware of fees they pay). 
• Plan participants will see fees for various 401(k) and 403(b) services in black and white on their quarterly investment summaries.
• Full disclosure includes indirect compensation.
• Plan participants may begin to raise concerns about their plans with the plan administrator and plan sponsor – including questions about the definition of “normal and reasonable” fees.
• Plan sponsors with above-average fees may need to consider ways to bring relatively expensive plans more in line with industry averages - or face disgruntled plan participants who may consider legal action.

CONSIDER THIS: Kaplan Financial Advisors, LLC (an ERISA Section 3(21) Fiduciary) and our nationwide 3(38) Fiduciary partner offer low cost, high quality plans that absorb investment liability from plan sponsors. We offer excellent alternatives to many expensive, unattractive 401(k) and 403(b) plans that expose plan sponsors fully to investment liability, and lack sufficient educational support to plan participants.