New 401(k) Fee Disclosure Requirements – What a Small Business Plan Sponsor Needs to Know

A recent study revealed that in excess of 50% of plan participants believe that they do not pay any fees in relation to their employer’s 401(k) plan.  In nearly all cases, that isn’t true.  Many third-party providers perform a variety of plan services:  recordkeeping, investment management, advisory services, compliance, communication, education, etc.  Often these services are bundled in a way that their related fees are not clearly visible to the plan sponsor or to participants.

New rules designed to give business owners and their employees a clearer view of retirement plan expenses go into effect this year.  By July 1, 2012, 401(k) service providers must provide a written disclosure to plan sponsors that includes a description of all services provided and detailed documentation of all direct and indirect compensation received by the service provider, its affiliates or subcontractors.  This should help plan sponsors make apples-to-apples comparisons between plans.  Not only can this help save the plan money, but plan sponsors are required to ensure that fees paid are reasonable.

In addition, beginning with 3rd quarter 2012 participant statements, new disclosures are also required from the plan sponsor to participants.  It is important to note that it is the plan sponsor’s responsibility to ensure these disclosures are made, not that of a third-party provider.  Plan information, administrative fees charged, and investment information and performance must be provided on an on-going basis.  The increased transparency should help participants make informed decisions about their retirement account.

Plan sponsors should be talking to their service provider(s) now to ensure that (1) they will be receiving the required disclosures by July 1 and (2) that the service provider will be ready and able to assist the plan sponsor meet its duty to provide the additional information to plan participants no later than November 14, 2012.

Deb L. Weyman a Private Business Services Group Director for Accounting Services and Pension Services for family-owned businesses. She is also business advisory for tax and financial statement services as well as managing audits for benefit plans.

Contact Deborah L.

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