What Information Should Be Included in Fee & Services Disclosures?

Fee and services disclosures are crucial documents that provide employers with a clear understanding of what they’re paying for and what they’re receiving from retirement plan vendors. These disclosures are not just a formality—they’re a key part of fulfilling your fiduciary duties as a plan sponsor. So, what exactly should these disclosures include to ensure you are making informed decisions and maintaining compliance with ERISA?

Comprehensive List of Services Provided

First and foremost, the disclosure should offer a detailed list of all services provided by the vendor. This includes everything from routine plan administration, such as recordkeeping and compliance testing, to more specialized services like investment management and participant education. Each service should be clearly described, outlining what exactly is covered. For example, if a vendor provides investment advice, the disclosure should specify whether this includes personalized advice to participants or if it is limited to general guidance [1] [2].

Transparent Breakdown of Fees

Transparency is key when it comes to understanding the costs associated with your retirement plan. The disclosure should provide a thorough breakdown of all fees, including both direct and indirect costs. Direct fees are those paid directly by the plan or sponsor to the vendor, such as flat fees for recordkeeping or percentages based on plan assets. Indirect fees might include revenue-sharing arrangements where the vendor receives compensation from third parties like mutual funds [1] [3].

It's also essential for the disclosure to specify how these fees are calculated. Are they flat fees, asset-based fees, or transaction-based? Understanding the structure of these fees helps you compare different vendors and assess whether the fees are reasonable for the services provided [3] [4].

Potential Conflicts of Interest

Another critical element in these disclosures is the identification of any potential conflicts of interest. Vendors must reveal if they receive compensation from third parties that could influence the services they provide or the investments they recommend. For instance, if a vendor is paid by a mutual fund company for including its funds in your plan’s investment lineup, this must be clearly disclosed. Knowing about such conflicts allows you to evaluate whether they could affect the impartiality of the services provided [2] [3].

Performance Metrics and Benchmarks

While not always included, a best practice is for vendors to provide performance metrics or benchmarks that allow you to assess the value you’re getting for the fees paid. This could include data on investment performance relative to market benchmarks, or comparisons of administrative costs against industry standards. While this information is often more difficult to extract, vendors committed to transparency and long-term partnerships should be willing to share these details [1] [5].

Ongoing Disclosure Obligations

Finally, it’s important to remember that fee and services disclosures are not a one-time obligation. Vendors should update these disclosures regularly—typically annually—to reflect any changes in fees, services, or potential conflicts of interest. As a plan sponsor, you are responsible for reviewing these updates and ensuring that the plan remains in compliance with fiduciary standards [2] [4].

In conclusion, a thorough and transparent fee and services disclosure is a vital tool in managing your retirement plan. It empowers you to make informed decisions, ensures that you are receiving fair value for the services provided, and helps you fulfill your fiduciary responsibilities. By carefully reviewing these disclosures, you can maintain the integrity of your plan and protect the financial future of your participants.

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References

 [1] ForUsAll. (2023, October 16). 401(k) fee disclosures: A comprehensive guide to 408(b)(2) fee disclosures. Retrieved from https://www.forusall.com/401k-blog/401k-fee-disclosures

 [2] Ogletree Deakins. (2012, February 2). DOL issues final service provider fee disclosure rules. Retrieved from https://ogletree.com/insights-resources/blog-posts/dol-issues-final-service-provider-fee-disclosure-rules/

 [3] Human Interest. (n.d.). 408(b)(2) fee disclosure | Retirement glossary term. Retrieved from https://humaninterest.com/learn/retirement-glossary/408b2-fee-disclosure/

 [4] U.S. Department of Labor. (n.d.). Fee disclosure failure notice. Retrieved from https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/fiduciary-responsibilities/fee-disclosure-failure-notice

 [5] Voya Financial Advisors. (n.d.). Sponsor fee disclosure for retirement plans subject to ERISA. Retrieved from https://www.voya.com/voyafinancialadvisors/for-your-clients/Sponsor-fee-disclosure