403(b) Webcast Series: Reducing Fiduciary Risk

February 18, 2011 (PLANSPONSOR.com) – In the first of PLANSPONSOR’s 2011 403(b) Webcast series, sponsored by Fidelity Investments, speakers discussed what new fee disclosure regulations mean for fiduciaries of ERISA-governed plans.

Doug Fisher, Senior Vice President, Retirement Policy Development, Fidelity, noted that the 408(b)(2) service provider disclosure regulation is oriented around ensuring that plan fiduciaries receive the appropriate information regarding services from various service providers to the plan, as well as the cost of those services, so they can make appropriate decisions. He added it will help smaller plan sponsors that don’t have expert staff or consultants.  

Margaret Raymond, Vice President and Associate General Counsel, Fidelity, explained that 408(b)(2) is one of the statutory exemptions to prohibited transactions. Fiduciaries have an obligation to arrange services for their plans, but cannot pay more than a reasonable fee for those services. The new regulation details what must be disclosed from service providers, further protecting fiduciaries in hiring service providers.  

According to Raymond, plan fiduciaries will need to get the disclosures before hiring a service provider; must get them within 60 days of any material change in the plan; and for existing relationships, must get them by the effective date of the regulation – now January 2012.  

Dan Keating, Vice President, Risk & Compliance, Fidelity, outlined what fiduciaries must do: 

  • Make sure you receive disclosure from all covered service providers; 
  • If you do not receive disclosure from a service provider, make sure you ask them for it; 
  • If you still don’t get it, you need to inform the Department of Labor; and 
  • Once you get the information, use the disclosed information in your fiduciary process for determining reasonableness of fees. 


As for the new participant disclosure regulations, Raymond noted the rule was not proposed under 404(c) – which was designed to protect fiduciaries from participant selection of investments – but falls under 404(a), which is the basic fiduciary prudence rule. Fiduciaries must describe plan level fees and provide quarterly statement of fees taken from accounts to participants. In addition, they must describe investment options and participants rights to choose investments, performance information against a benchmark, expense ratios, shareholder related fees (for example, early redemption fees), and stated returns – all in a comparative chart.  

Raymond said the regulation is applicable for plan years beginning on or after November 1, 2011, and disclosures must be sent to all eligible employees, not just plan participants.  

According to Keating, plan fiduciaries should: 

  • Add the new required participant disclosures to your fiduciary checklist of required disclosures; 
  • Consider how the new disclosure fits in with existing participant communication strategies; 
  • Consider how the new disclosure affects approach to ERISA Section 404(c); and 
  • Review investment line-up and confirm how all required information will feed into the comparative chart. 


During the Webcast panelists also discussed what it means to be a plan fiduciary, new target-date disclosure rules, and what’s going on in Washington. 

The Webcast recording is here.