Fiduciaries Must Disclose Plan Fees and Costs
Do you know what you are being charged in plan fees? You will soon under a Department of Labor final regulation issued October 14, 2010.
Within the year, retirement plan administrators will be required to disclose to participants the plan operating expenses and all investment-related operating expenses and shareholder fees for each investment option offered in participant-directed individual account plans. Fiduciaries must also disclose the expense ratio and all shareholder fees for investment options.
The rule is not applicable until the first plan year beginning on or after Nov. 1, 2011. For calendar-year plans, the rule would apply Jan. 1, 2012
According to Phyllis Borzi, assistant secretary of labor for the Employee Benefits Security Administration: “The law, prior to the new rule, did not guarantee that all workers received sufficient information on fees and expenses in formats that were consistent and accessible.”
Each disclosure must include a simple, plain language explanation of what the charges are for and a glossary explaining investment terms in an easy-to-understand manner.
Borzi added: “These categories of information have to be given to participants on or before the day they can first make their investment decision and then every year thereafter.”
Beyond the initial general disclosures, fiduciaries also must provide plan participants with statements at least once a quarter that show the dollar amount of plan-related fees and expenses that will be charged to or deducted from participants’ accounts.
For both categories of investments—mutual funds and fixed-rate investments—the new disclosure rules will require plan administrators to provide investment returns and benchmarks based on one-year, five-year, and 10-year investment returns.
Reaction from Industry Insiders
Brian Graff, executive director and chief executive officer at the American Society of Pension Professionals and Actuaries, said the new regulation “without question” imposes a new fiduciary liability on plan sponsors. Even though as fiduciaries, they are not liable for the completeness or accuracy of the information disclosed, “Participants can sue under the new rule,” he said.
Our Viewpoint
What do the new fee disclosure rules mean for you? They mean that plan sponsors will have the ammunition they need to choose the right advisor. It also means that advisors will be held accountable for what they charge plans. By making fees more transparent, the aim is for plan fees to decrease while performance increases.
If you have any questions about the regulations, please contact:
Kenneth J. Vilcheck, AIF®, Elliott Davis Investment Advisors
Gary E. Shuford II, AIF®, CRSP, Elliott Davis Investment Advisors