Recent Developments in 401(k) Fee Disclosure Rules

HR Resource
March 4, 2013 — 1,688 views  
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The legislation that came into effect during June 2012 was a massive step towards enlightening and clarifying participants and plan sponsors about the fees paid for the 401(k) plans. The latest law requires each plan to provide fiduciaries and their plan sponsors with a fee disclosure report, also called the 408(b) 2 Document. The participants and plan sponsors can resort to numerous steps in efforts to ensure that their 401(k) fees are reasonable and fair in keeping with the plan’s size.

Ways to Ensure Reasonableness of 401(k) Plan

Participants and plan sponsors must hire a consultant/professional from outside to conduct a review of the fee disclosures which are complicated and complex, and not easy for the average Joe to understand. Usually, a consultant with a finance background, a CFR, or particular training associated with 401k fees can help you better understand the disclosures. The other good practice that can help throw more light on an organization’s 401k fees is to make the plan a yardstick. The sponsor of the plan should determine whether the fees are fair for the services offered to the plan. Making the plan a yardstick will help compare an organization’s plan to that of other firms of similar size.       

Managing the 401(k) Plan

Effective management of your 401(k) plan can be done by hiring a professional from outside (third-party provider), establishing an internal committee of administrative professionals, allowing Human Resources to handle the management, if applicable, or a combination of any of the aforementioned options.

Fiduciary Responsibilities for 401(k) Plan under ERISA

The ERISA (Employee Retirement Income Security Act) requires participants and plan sponsors of the 401(k) plan to maintain discretion over the plan and meet the conduct standards. Failure to comply with ERISA can have serious legal implications and risks for plan sponsors. A professional with training in handling ERISA-related matters must be approached to ensure that plan administration continues even with limited resources.

Benefit plans that meet ERISA’s requirements are called “qualified retirement plans”. These plans also comply with the IRC (Internal Revenue Code). Core elements of the 401(k) plan should include the following in order to keep up with ERISA’s requirements.

  • A plan in writing, guiding operations on a daily basis and describing benefit structure.
  • A trust account to hold the assets of the plan.
  • A record to keep a track of the money flowing to and from the 401(k) plan.
  • Reports furnishing necessary disclosures to beneficiaries, participants of the plan, and the government.

ERISA fiduciaries must follow some important rules when handling 401(k) fees. Professionals are required to act in a manner which reflects that the plan participants are their main interests. Professionals are also required to act “prudently” while making decisions. The terms of the 401(k) plan must be followed and it must be kept current. Only reasonable fees and expenses must be paid, investments must be diversified in order to reduce the risk of loss, and “prohibited” transactions must be avoided.

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