While retirement plan service providers and employers just received extensions on effective dates to disclose detailed fee information, many in the industry are asking for even more time to process possible changes once the federal rules are complete.
“We are very supportive with what the Labor Department is doing, but we don’t want it hurried to the finish line,” says Craig Hoffman, general counsel for the Arlington, Virginia-based American Society of Pension Professionals & Actuaries, adding that the department should give providers and plan sponsors “enough time to do it right.”
The key issue with the Labor Department’s interim final regulation requiring service providers to disclose fee and expense information to plan sponsors is what hasn’t been made official. The interim final rule doesn’t require providers to create a summary document, which would help plan sponsors have a better understanding of what they are paying for. But there was plenty of public comment saying whether this would be a good idea.
Those who commented disagreed about costs of format requirements as well as whether the department should remain flexible in allowing providers to figure out how to best disclose fee information. With all of the discussion though, observers say they are expecting the Labor Department to require some kind of summary fee disclosure document.
“We’re concerned about the possible changes in final form,” says Larry Goldbrum, general council for the SPARK Institute Inc., which is part of the Simsbury, Connecticut-based Society of Professional Asset-Managers & Record Keepers. “Even minor changes to the rule could ultimately result in a time-consuming technology project” for providers.
The concern with this rule has a direct effect on a second rule requiring plan sponsors to give participants information on plan and investment costs.
The Labor Department intends to address the summary document issue in the final rule, which is expected to be published in late summer or early fall, a department source said. The source wouldn’t say what the provision might require.
“I think there is going to be a lot of pressure for the Department of Labor to delay, but I don’t think that’s going to happen,” says Lori Lucas, defined contribution practice leader in the Chicago office of San Francisco-based Callan Associates Inc. “Providers are flying blind right now.”
Last year, the department issued complementary interim final and final rules. The interim final regulation, issued in July 2010, would require retirement plan providers, like record keepers and investment managers, to break out fees charged for services as well as list potential conflicts of interest. Providers said they needed more time to update systems and procedures to collect data, so last month, the Labor Department delayed the July 16, 2011, effective date to Jan. 1, 2012.
The second rule, which was in final form in October 2010 and is known as the participant-level regulation, requires plan sponsors to give detailed data on fees and expenses to participants starting Nov. 1 for calendar-year plans. Because the department wanted to better align the start of the two rules, it said in its most recent notice that employers with calendar-year plans wouldn’t have to provide that information until April 30, 2012.
Several organizations, including Hoffman’s and Goldbrum’s, have asked the Labor Department for more time once the rule is final so providers can adapt systems, if there are additions or changes to what is already known.
“If a summary of some type is required, the parameters for what it must contain and how it is to be formatted will significantly impact system design,” Hoffman wrote in a letter to the department, which asks for one year following the publication of the final rule for providers to comply. “It is difficult, if not impossible, to begin such work without first having the specifications that must be satisfied.”
But Chad Parks, president and CEO of the Online 401(k) in San Francisco, a retirement plan specialist for small businesses, says his company doesn’t need a delay.
“We think this is very good because it will hopefully level the playing field,” says Parks, whose company charges a flat, per-participant fee for administering plans. “What is there to fear about fee disclosure? How is transparency a bad thing?”
Hoffman’s and Goldbrum’s groups have also pointed out the need for a centralized database and benchmarking standards so plan sponsors can fulfill their fiduciary duty, ensuring they are paying reasonable fees. That information is critical in helping fulfill the other regulation: delivering cost statements to participants, experts say.
Alan Vorchheimer, principal at Buck Consultants in New York, expects the market will eventually develop the necessary benchmarking tools.
“I wouldn’t say the industry is ready,” Vorchheimer says. “I think it will happen but it will take a couple of years.”
But one has already emerged. Last month, Charlotte, North Carolina-based benchmarking company PlanTools launched its Revenue Sharing Database, which is aimed at helping service providers compare these fees that are usually embedded. With revenue sharing, a portion of mutual fund expense ratios are “shared back” with the record keeper—typically a separate company such as a payroll provider or accounting firm—usually an expense that isn’t itemized.
“These new rules are elevating what is required,” says David Witz, PlanTools’ managing director. “We have built a process where plan sponsors can evaluate provider fees.”
Workforce Management Online, July 2011 -- Register Now!
