From the July-August 2010 issue of Treasury & Risk magazine

New Rules Require Disclosure of Retirement Plan Fees


After years of discussion, the Department of Labor issued rules in July that mandate disclosure of the fees retirement plan service providers charge defined-contribution plans, like 401(k)s, and traditional defined-benefit pension plans.

The new regulations require investment management companies, record-keepers and other vendors to provide a written account of all the compensation they receive, whether it's from the plan sponsor or another party.

Donald Stone, president and co-founder of Chicago consultancy Plan Sponsor Advisors, says the disclosure rules mean plan sponsors will be getting "some interesting information, perhaps more information than they fully understand."

Stone questions whether plan sponsors have enough data to put the fees they're paying into context. "Whatever that fee is, how do I know if that's reasonable or not?" he asks. "I think there's going to be a fair amount of consternation and confusion."

There's also some question about the Department of Labor's authority to require retirement plan vendors to make such disclosures, he says, causing some to argue that legislation would be more effective. Rep. George Miller (D-Calif.) has sponsored a bill on 401(k) fee disclosure that passed the House in May. In a statement, Miller said he supports the Labor Department's regulations, but will "continue to fight for my legislation that would codify these consumer protections into law for all 401(k)-style plans."

The debate about retirement plan fees has centered on 401(k) plans. Companies sponsoring such plans are free to pass all of the fees on to participants, and critics say such costs can put a considerable dent in employees' retirement savings. In addition, the plans' complicated arrangements can make it hard for both plan sponsors and participants to understand the fees involved.

On the defined-contribution side, "people who have been charging a truly egregious fee, that's going to be fully disclosed," Stone says. "This fee disclosure will help compress fees within the industry." He sees less of an impact on defined-benefit costs, arguing that the sponsors of DB plans are already aware of their costs, since they pay them.

The new rules go into effect in July 2011. Labor is expected to release separate rules this fall on disclosing fees to plan participants.

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