The long-awaited new Department of Labor (DOL) regulations regarding fee disclosure and transparency came into effect on July 1 of this year. These regulations govern the relationship between ERISA-covered plan sponsors (each a “Sponsor”), the beneficiaries of the plans, and providers of record-keeping, administrative and investment management services (each a “Service Provider” or “SP”). As a Sponsor, you are now individually liable for any failure to comply with the new requirements. If you have not done so already then here are the steps you need to take to bring your plans into full compliance.
Step #1: Know the Critical Dates
There are two critical dates of which you need to be aware. One has passed, and the other is fast approaching. By July 1 all Sponsors should have received information from each Service Provider containing comprehensive fee and expense information for that provider, such that the Sponsor is able to document all the costs charged to plan accounts. On August 30 each Plan Sponsor in turn will be required to furnish this information to all plan beneficiaries, so that each participant in the plan understands the costs charged by third party SPs to his or her plan account.
Step #2: Document and Follow Up on All Provider and Cost Information
Make sure that you can identify and document each Service Provider and the fees and expenses charged by each. If you discover that there are SPs which have not yet provided the information required by the new regulations then you will need to send a written request for the information to each delinquent provider. This request must be sent no later than 90 days from July 1.
Step #3: Set Up Appropriate Benchmarking Processes
Under the new regulations it is not enough for a Sponsor to simply document the cost information and provide it to participants; you must also evaluate whether the fees charged by your Service Providers are fair and reasonable. What does “fair and reasonable” mean? Simply that the fees charged for any specific record-keeping or investment management services are in line with the levels charged by other providers of similar services. If you are unfamiliar with how to establish and execute a robust benchmarking process then you should seek the assistance of a third party consultant that can provide expert advisory services. You will be expected to have the capability to demonstrate the presence of a well thought-through benchmarking process to be in full regulatory compliance.
Step #4: Understand “Prohibited Transactions”
A Service Provider can incur status as a Prohibited Transaction within the meaning of the new regulations either by failing to provide the required fee and expense information to the Sponsor or by failing to negotiate and accept a more reasonable cost structure if the current fee arrangements are found to be out of line with peer group norms. The Plan Sponsor is required to report all Prohibited Transactions on their Form 5500. In the event that the situation with any applicable Service Provider is not suitably remedied on a timely basis then the Sponsor will be required to terminate the contract within a reasonable time period, to inform the DOL of the SP’s failure to comply, and to replace the SP with another provider that is willing and able to comply with the regulatory framework.
The new fee and transparency regulations have far-reaching implications for all ERISA-covered plan entities. Make sure that you are fully ready for the requirements of this new environment. At MV Capital Management we have longstanding experience in providing independent, unconflicted investment management and employee benefits advice to plan sponsors of all types.