New 401(k) Regs on Fee Disclosures

In February of 2012, the DOL published long-awaited final regs under Section 408(b)(2) of ERISA to be effective July 1, 2012 which require the disclosure of fees that service providers charge to pension and 401(k) plans. The fee regs do not apply to government plans, simplified employee pensions, simple retirement accounts, IRAs and 403(b) annuity contracts and custodial accounts. The fee regs would also not apply to the fees paid to service providers directly by the employer out of general business funds. The regs are directed at fees paid out of assets of the plan or the individual participant’s account. The kinds of services for which fees must be disclosed include, but are not limited to, direct fiduciary services, direct investment advisor services, record keeping and brokerage services, accounting, auditing, actuarial, legal and third party administration.

Why should the employer be concerned about the new regs? Can’t all these requirements be handled by the existing third party administrator for the plan?

The employer should be concerned because almost always the plan documents name the company as the plan administrator which in turn makes the company a fiduciary with respect to the plan. Virtually all service provider agreements, except those for the trustee custodian of funds and entities acting as investment advisers, disclaim that the service provider is a fiduciary and point to the plan administrator as the fiduciary. Since virtually always it is the employer who has the authority to enter into service contracts, the employer will have the fiduciary responsibility. It is important how the plan and related documents identify the plan administrator and/or the “named fiduciary.” It is highly likely that company is named as the plan administrator. Sometime a committee is named as the plan administrator. Virtually never is the third party administrator (“TPA”) identified as the plan administrator (sometime the TPA is identified as the claims administrator which is not the same as the plan administrator).

Even when the documents only identify the company as the plan administrator, ERISA’s definition of fiduciary can include individuals such as officers or human resource managers if they exercise discretion with respect to the administration of the plan. Under the new fee regulations, this means it is possible that individual officers or human resource managers could be held personally liable for failing to fulfill all of the fiduciary duties imposed by the regs.

The fiduciary duties imposed by the new regs may not be able to be fully and totally delegated to a third party administrator. Essentially all small and medium sized employers will rely on and pay (or have the plan pay) an outside vendor (usually the existing TPA) to gather the service fee information, put it in good order and communicate the fee information to participants. The TPA (for a fee) may assist the employer/fiduciary in judging whether the fees and service are “reasonable.” However, it is unlikely any TPA would assume fiduciary responsibilities in providing the assistance. The bottom line is the employer as plan administrator/fiduciary will remain responsible, in a fiduciary capacity, for oversight of all aspects of the new regs.


Posted by Carl H. Hellerstedt, Jr.
Mr. Hellerstedt is Counsel with Spilman Thomas & Battle, PLLC. His primary areas of practice are labor and employment and ERISA law.

Carl H. Hellerstedt, Jr.

1 thought on “New 401(k) Regs on Fee Disclosures

  1. Pingback: New Fee Disclosure Regs for Pension and 401(k) Plans: What Should Employers Do? | INGOTS

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