Retirement plan disclosures—a year later

Understand your responsibilities as a plan sponsor

In a recent interview, renowned ERISA attorney Fred Reish commented that retirement plan sponsors who are not evaluating the service provider and fee information made available to them last year are “at risk” of engaging in prohibited transactions. In this alert, we review client’s responsibilities as fiduciaries under the service provider and participant-level disclosure regulations, and we recommend actions they can take to demonstrate prudence in the management of their retirement plans.

It’s hard to believe a year has passed since the initial compliance due dates of the U.S. Department of Labor’s fee disclosure rules for plan service providers and investment and fee disclosure rules for participants in participant-directed retirement plans. Based on the DOL’s follow-up activity, both on its website and in its newsletters (see February 4, 2013October 22, 2012, and October 9, 2012 issues), the message to you as a plan sponsor is clear—attention to plan operations, including services provided and compensation for those services, as well as proper disclosures to your participants should be a continual focus, not a one-time event.

Covered Service Provider Disclosures

The new plan-level service provider disclosures were developed by the DOL for one purpose—to make sure CSPs provide sufficient information to help you make more informed decisions, based on both the need and the cost of those services, when selecting and reviewing service providers for your retirement plan. The fee disclosure mandate does not require that you automatically search for a new provider, particularly if you have documented your evaluation and the rationale for selecting your service providers. What it does require is that you, periodically, carefully review the information provided and document it in the context of your plan’s needs and available alternatives to show prudence in managing your plan. Specifically, we recommend that you:

  1. Create and maintain a list of your service providers.
  2. Verify that you have received information from each service provider and, if not, that you have documented why (i.e., not a covered provider).
  3. Review your disclosures* and make sure you understand them, asking questions when necessary.
  4. Determine, periodically, the reasonableness of plan costs, the rationale for those determinations, and any actions to be taken as a result. Document your process.

*Your CSPs also have an ongoing obligation to report to you any changes in initial disclosures within 60 days of when your CSP is informed of the change and to provide you with annual updates of investment-related information if your participants direct their own investments.

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