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Plan sponsors have the fiduciary responsibility to pay only “reasonable” plan expenses. However, those providing services to the plans were not required to provide complete fee disclosures thus making it difficult to comply. This led to the new DOL fee disclosure regulations 408 (b) (2) and 405(a) (5) so that plan fiduciaries have all the information necessary to make this evaluation. The key to compliance is to establish a process as to who will be responsible for these duties, when they will be performed, and how they will be documented. Here is a summary of the regulations, requirements, and consequences for non compliance:

  1. Confirm that all disclosures were received and document this process
    1. Plan Provider Disclosures- DOL Regulation 408(b) (2) requires that providers confirm and document that all the disclosures from plan providers were received. This is ANYONE who provides a service to the plan and receives payment of more than $1,000 Regardless of format, information should be accurate and on time. This must be done by July 1, of 2012 or if there is a change thereafter. Plan service providers include the following:
      1. Your plan provider
      2. Financial representative, Auditing, Legal, Consulting
      3. Your TPA
    2. Plan Participant Fee Disclosures were received, were adequate, and provided to participants -DOL Regulation 408(a) (5) requires that annual disclosures be provided to participants and beneficiaries who direct their investments and created a sample at to include the following:
      1. Plan related information
      2. Investment related information
      3. Quarterly statements that show any plan-related fees that were applied
      4. Who, when, and how will notices be distributed to participants
  2. Review and confirm that disclosures were adequate and document this process– DOL Regulation 408 (b)(2)-
    1. Have all the services and associated fees been disclosed including direct compensation (compensation received from the plan e.g. asset or wrap fees) indirect compensation? (commissions to advisors and service fees from mutual funds to the provider)
    2. Establish whether the provider is a fiduciary and that this has been disclosed
    3. Establish whether there are any potential conflicts of interest
  3. Establish whether the fees for services are “reasonable” and document the process. Plan sponsors have a fiduciary duty to make sure the plan expenses are reasonable for the services provided (cost vs. quality) This can be accomplished by:
    1. Comparison pricing your plan and the services provided to it using a benchmark service
    2. Actively shopping the plan around to other competing plan providers
  4. What are the consequences for not performing these duties?
    1. The failure to comply with the plan provider fee disclosures will be that you may be held to be partaking in a prohibited transaction by the DOL that will lead to an excise tax of 15% of the service provider contract up to 100% for further non-compliance
    2. Failure to comply with the participant fee disclosure can result in loss of liability protection under 404 ( c ) and possible damages in litigation by the DOL or participants