Company's 401(k) Plan.
Blog
| 30 August 2010
What does Section 408(b)(2), a new regulation from the Department of Labor (DOL), mean for defined contribution plan sponsors?
The short answer: After it goes into effect on July 16, 2011, you'll receive more information about fees and fiduciary status from your service providers. This information will help you to better evaluate your plan providers. However, it will also add to your work load because there will be more data for you to sift.
Focus on fees, potential conflicts, and fiduciary status
As DOL explains in its Fact Sheet on this new regulation, its goal is to provide the data you need "to assess both the reasonableness of the compensation to be paid for plan services and potential conflicts of interest that may affect the performance of those services."
By mid-July 2011, your service providers−including any fiduciaries, record keepers, and brokers must provide written disclosures about their services and costs, fiduciary status, and other issues.
This is a big change. Until now industry practices have allowed providers to obscure costs by bundling services and relying upon indirect−rather than direct−compensation. Under earlier regulations, providers only reported direct compensation and they didn't need to say whether they were fiduciaries. For example, under the old regulations, a provider might have received ongoing compensation from the mutual funds on its 401(k) platform without revealing the details of that relationship. Driven by self-interest, they may have recommended funds that paid high fees rather than the funds best-suited for your plan participants.
As the DOL Fact Sheet says, " Because certain services and costs are so significant or present the potential for conflicts of interest, information concerning those services and costs must be disclosed without regard to whether services are furnished as part of a bundle or package. For example, service providers must disclose whether they are providing record keeping services and the compensation attributable to such services, even when no explicit charge for record keeping is identified as part of the service contract."
In other words, DOL is concerned that some retirement plan fees are excessive and that conflicts of interest may influence advice provided to plan sponsors and plan participants.
More disclosure is a good thing, especially if the information is easily understood. The best, most marketing-savvy providers will provide you with a clearly written summary of their disclosures. They'll save you from the fine print.
If you'd like to learn more about 408(b)(2), please call me at 916-435-2100 or email me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . I'd be happy to talk with you.