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UPDATE:DOL Extends Deadlines for Service Provider and Participant-Level Fee Disclosures by Additional 3 Months
The U.S. Department of Labor's (DOL) Employee Benefits Security Administration (EBSA) published its long-awaited final rule, "Reasonable Contract or Arrangement Under Section 408(b)(2) – Fee Disclosure," in the Federal Register on Feb, 3, 2012. The final rule requires retirement plan service providers to disclose to plan sponsors the administrative and investment costs associated with their plans. It extends the effective date to July 1, 2012, for new and existing contracts or arrangements between service providers and plans covered under the Employee Retirement Income Security Act (ERISA).
Another set of required fee disclosures, from plan sponsors to 401(k) plan participants (participant-level fee disclosures), is set to take effect 60 days after the service provider fee disclosure deadline. Due to the extension of the effective date of the final rule, plan administrators for calendar year plans now must make the initial annual disclosure of "plan-level" and "investment-level" information (including associated fees and expenses) to participants no later than Aug. 30, 2012, and the first quarterly statement (for fees incurred July through September) must be furnished no later than Nov. 14, 2012.
To learn more, see the SHRM Online article "DOL Final Rule Extends Deadlines for Service Provider and Participant-Level Fee Disclosures."
The U.S. Department of Labor’s (DOL) Employee Benefits Security Administration published in the Oct. 20, 2010 Federal Register a final rule intended to give participants in 401(k)-type defined contribution retirement plans greater information regarding the fees and expenses associated with their plans. The DOL also issued a fact sheet related to the new rule.
The new final rule comes on the heels of a separate interim final rule, issued by DOL in July 2010, outlining the requirements that service providers must follow to disclose fees to plan sponsors (see DOL Issues Interim Final Rule on Disclosing Retirement Plan Fees). [Update: On March, 2, 2012, the DOL issued a final rule on service provider fee disclosures; see "DOL Final Rule Extends Deadlines for Service Provider and Participant-Level Fee Disclosures by 3 Months"].
"Current law does not require that all workers be given the information they need to make informed investment decisions or, when information is given, that it is furnished in a user-friendly format," according to a statement from the DOL. "This rule will ensure that all workers who direct their plan investments have access to the information they need to make informed decisions regarding the investment of their retirement savings, including fee and expense information. Under the rule, workers will receive this information in a format that enables them to meaningfully compare the investment options under their plans."
A July 2010 survey report by the Transamerica Center for Retirement Studies shows that most U.S. plan sponsors think their employees are aware of fees, even though they aren't (only 26 percent of workers are aware of any fees). The survey showed that a majority of workers prefer some type of summary in regards to fee information (55 percent), and workers have a strong preference for electronic delivery of fee information.
“While the new regulations will help workers make more informed decisions about their retirement plans, it is paramount that workers take responsibility and educate themselves about fees and retirement planning,” commented Catherine Collinson, president of the TransAmerica Center.
----------------------------------------------------------------------------------The final regulations represent a reasoned approachto consistent delivery of required fee disclosure.-- American Benefits Council--------------------------------------------------------------------------------
“Upon our initial review, the final regulations represent a reasoned approach to consistent delivery of required retirement plan fee disclosure,” added James Klein, president of the American Benefits Council, representing employers. “We applaud the agency’s efforts to provide flexibility for plan sponsors and administrators as they comply with the new disclosure rules, as well as the opportunity to explore options for enhanced electronic disclosure,” Klein said.
The DOL's final rule requires plan fiduciaries to:
• Give workers quarterly statements of plan fees and expenses deducted from their accounts. • Give workers core information about investments available under their plan including the cost of these investments. • Use standard methodologies when calculating and disclosing expense and return information to achieve uniformity across the spectrum of investments that exist in plans. • Present the information in a format that makes it easier for workers to comparison shop among the plan’s investment options. • Give workers access to supplemental investment information in addition to the basic information required under the final rule.
• Give workers quarterly statements of plan fees and expenses deducted from their accounts.
• Give workers core information about investments available under their plan including the cost of these investments.
• Use standard methodologies when calculating and disclosing expense and return information to achieve uniformity across the spectrum of investments that exist in plans.
• Present the information in a format that makes it easier for workers to comparison shop among the plan’s investment options.
• Give workers access to supplemental investment information in addition to the basic information required under the final rule.
The final rule, published in the Federal Register on Oct. 20, 2010, will become applicable to covered individual account plans for plan years beginning on or after Nov. 1, 2011. For calendar year plans, compliance will be required on Jan. 1, 2012.
Model Comparative Charts
The final rule provides that investment fund returns and fee-disclosure information must be furnished in charts designed to compare each investment option available under the plan, and includes model comparative charts, such as the following:
Fees and Expenses
Name / Type of Option
Total Annual Operating Expenses
As a %
Index Fund/ S&P 500
$20 annual service charge subtracted from investments held in this option if valued at less than $10,000.
Fund/ Large Cap
2.25% deferred sales charge subtracted from amounts withdrawn within 12 months of purchase.
Fund/ International Stock
5.75% sales charge subtracted from amounts invested.
Fund/ Mid Cap ETF
4.25% sales charge subtracted from amounts withdrawn.
Fund/ Bond Index
Fund/ Guaranteed Insurance Contracts (GICs)
10% charge subtracted from amounts withdrawn within 18 months of initial investment.
Fund/ Stable value
Amounts withdrawn may not be transferred to a competing option for 90 days after withdrawal.
Fund/ 2020 Target-Date
Excessive trading restricts additional purchases (other than contributions and loan repayments) for 85 days.
Fixed Return Investments
LIBOR Plus/ Fixed-Type Investment Account
5% contingent deferred sales charge subtracted from amounts withdrawn; charge reduced by 1% on 12-month anniversary of each investment.
Financial Service Co. / Fixed Account Investment
90 days of interest subtracted from amounts withdrawn before maturity.
The rule provides plan administrators protection from liability for the completeness and accuracy of information provided to participants if the plan administrator reasonably and in good faith relies on information provided by a service provider.
Stephen Miller is an online editor/manager for SHRM.
New Participant Fee Disclosure Rules: What Plan Sponsors Need to Know, The Principal Financial Group, January 2011
Reading the New DOL Fee Regulation, BNA's Pension & Benefits Blog, October 2010
10 Things 401(k) Providers Won't Tell You, Smart Money, June 2010
Some Excessive 401(k) Fee Cases Recognized by Courts, SHRM Online Legal Issues, October 2010
DOL Issues Final Rule on Fee Disclosure (to participants), SHRM Online Legal Issues, October 2010
Control 401(k) Costs with a Zero Revenue-Sharing Strategy, SHRM Online Benefits Discipline, September 2010
DOL Issues Interim Final Rule on Disclosing Retirement Plan Fees (from service providers to plan sponsors), SHRM Online Benefits Discipline, July 2010
Understanding New DOL Rules on Retirement Plan Fee Disclosure (from service providers to plan sponsors), SHRM Online Benefits Discipline, September 2010
401(k) Participants Want Fee Summary, Not Detailed Disclosure, SHRM Online Benefits Discipline, July 2009
DOL Proposes Rule to Improve 401(k) FeeDisclosure (from plan sponsors to participants), SHRM Online Benefits Discipline, July 2008
SHRM Online Benefits Discipline
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