Despite the dizzying array of new fee rules that 401(k) plan administrators and companies providing services to those plans must implement this year, Debbie Hoover says her small manufacturing company is ready for them.
Hoover, director of human resources for Los Angeles-based industrial paint maker Ellis Paint, says that although she initially was overwhelmed by the new wave of regulations, her retirement plan administrator, Fidelity Investments, coached her on the changes and new responsibilities. Ellis, with 150 employees, decided that Fidelity would do the detail work and would later explain it to its plan participants.
"I was concerned about how we were going to do this when the regulations first went through," Hoover says about the double dose of rules governing fees charged to retirement plans like 401(k)s. The regulations, which were issued by the Labor Department in several phases, all must be implemented this year. "As a small company, having Fidelity handle it seemed to be the most efficient way to do this."
The rules are the Labor Department's two-step way of making sure that plan sponsors such as Ellis Paint know how much providers like record keepers, money managers and plan administrators are charging to service 401(k) plans. Another regulation, which was finalized in October 2010 but goes into effect this summer, requires plan sponsors to tell participants about these fees and how they affect their account balances.
Even though the first regulation has providers like Fidelity doing a lot of work, companies shoulder a lot of responsibilities too. Experts say larger plans are ready for the change, but many midsize and small companies are trying to establish deadlines for information and the actions they should to take once it's assembled.
"The challenge for many plans is following the process," says David Wray, president of the Plan Sponsor Council of America, formerly the Profit Sharing/401k Council of America. "That means going through and making sure [plan sponsors] can assemble all the information so it can be benchmarked."
The requirements can be confusing, says Sam Henson, senior ERISA counsel for Lockton Retirement Services in Kansas City, Missouri. To help plan sponsors through the process, Lockton created a checklist to make sure plan sponsors are reaching the right service providers before deadlines for information hit.
"Lots of plan sponsors are scrambling to make sure they are doing this," Henson says. "The intent of the rule is great. The [Department of Labor] wants to make sure plan sponsors are getting what they are paying for, but in order to get there, the DOL has put a tremendous burden on them."
Plan sponsors should be contacting all service providers that charge the plan at least $1,000 or more annually. By May 1, plan sponsors need to figure out whether fees are reasonable, Henson says. If providers haven't given the information by July 1, plan sponsors should issue a written request. If providers haven't complied by Nov. 1, plan sponsors should notify the Labor Department.
Plan sponsors need the provider fee information so they can give participants data on fees. This regulation comes in two waves: the first requiring plan sponsors to give participants plan and investment information due Aug. 30, and the second delivering quarterly information on fees and services to participants' individual accounts, due Nov. 14.
The key to the process is documentation, experts agree. It's important the plan sponsor have a paper trail to show the Labor Department, Henson says.
"You've got to have a really detailed file to show you tried to comply with the rules to the best of your ability," Henson says. "That's the way the DOL does everything."
The penalty for not complying is draconian, says Marcia Wagner, owner of Boston-based Wagner Law Group. If a provider doesn't give the plan sponsor the necessary information, or if fees are found unreasonable, the plan sponsor must fire the provider.
Plan sponsors ignoring these outcomes could be sued by participants and the Labor Department as well as face a 15 percent excise tax and other penalties, she says.
"You don't want to mess with this law," Wagner says. "The Labor Department isn't playing around with this."
Patty Kujawa is a freelance writer based in Milwaukee. To comment email firstname.lastname@example.org.