How Can You Ensure You’re Compliant With Disclosure Review?

Paul McEwan | July 11th, 2013

Let’s face it. You like to be prepared when it comes to your finances. So do participants of your benefit plans. That need for preparation is what has driven the recent changes in regards to fee disclosure. As a plan sponsor, you need to comply with these new requirements. Are you sure you’re keeping up with your role in the process?

Can you answer these questions?

  • Did you receive the appropriate notices from your plan’s service providers?
  • What have you done to determine whether your plan’s fees are reasonable?
  • Did you document your work?
  • Did your record keeper send out the necessary participant fee disclosure notices and update quarterly participant statements to comply with the new rules?

If not, then you have some catching up to do. Make no mistake, plan fee transparency is a good thing and it’s long overdue. However, the new requirements bring with them specific responsibilities for you as a plan sponsor.

Understand the Why and How of the Rules

Not only do you have to understand the new fee disclosure rules, but also how plan fees are paid and whether your plan’s fees are reasonable. The following two regulations took effect in 2012:

Trustee Disclosure Regulations. Aimed at plan sponsors, they require plan vendors make certain disclosures in writing to plan sponsors. The idea is that plan sponsors can’t determine if fees are reasonable if they don’t know what the fees are. So, vendors are required to disclose in writing (among other things) a description of their services and any direct (paid by the plan) or indirect (paid by another plan service provider) compensation they are receiving.

Participant Disclosure Regulations. These regulations are directed at your employees, or plan participants. They require that participants receive information regarding the plan level fees paid from their accounts for investment management, general administrative and record keeping services, as well as participant-specific charges, like loan fees and distribution fees. These fees had to be disclosed as part of participants’ quarterly statements (presently, most record keepers net the fees from plan earnings).

Review, Compare and Monitor

So what must you do to comply with these new fee disclosure and reasonableness requirements? Follow these steps:

  1. Review – Have you reviewed the notices received from your plan’s service providers? Were they written in compliance with the regulation? Did you receive notices from all service providers that were required to provide them? If any of your notices were incomplete, incorrect or not received at all, then you must request the missing information within 30 days of discovery or else you will commit a fiduciary breach. The plan service provider then has 90 days to provide the missing information. If it is not provided, then you must replace that service provider and report them to the U.S. Department of Labor. If this process is not followed, then any fees paid to the uncooperative vendor are considered a prohibited transaction, subject to penalties.

  2. Compare – Benchmark your plan’s fees against other plans of similar size as measured by assets and number of participants. Ideally, the benchmark report should be prepared by an independent entity that is not associated with any of your plan’s current service providers. There are a number of benchmarking services available. The benchmark report will help you identify all the fees paid by the plan, who is being paid, any revenue sharing arrangements and provide a comparison of the itemized cost of each service against the average of other plans. This is the best way to determine whether you are receiving good value from your current providers. The only other way to do such comparisons is through a request for proposal process, but that method is very time consuming and you cannot control the quality or content of the information you will receive from the prospective vendors. If fees are not reviewed for reasonableness, then they are deemed prohibited transactions, subject to penalty.
  3. Monitor – Implement a process for ongoing monitoring to hold plan providers accountable. A recommended best practice is to benchmark your plan’s fee every three to five years. And document the process, so that you can show inquisitive participants and regulators that you are fulfilling your fiduciary responsibilities. In the end, the amount of fees that you are paying is not the issue; it is the reasonableness and transparency of those fees that is required.

Contact our Ohio Pension Administration Team

If you do not feel comfortable performing the steps described above on your own, contact Rea & Associates. Our Ohio pension administration team can help ensure you are meeting all of the requirements necessary for compliance and ultimately put your mind at ease. What are you waiting for?

 

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