Best Practices for 403(b)s Subject to Fee Disclosure Rules

January 17, 2011 ( – During a workshop at the National Tax-Sheltered Accounts Association (NTSAA) latest 403(b) Compliance Resolution Summit, industry representatives identified fee disclosure issues unique to 403(b) plan sponsors and discussed best practices.

Beginning April 1, 2012, new Department of Labor regulations under 408(b)(2) will require “covered service providers” (CSPs) to disclose information about fees and services to plan sponsors of Employee Retirement Income Security Act (ERISA) retirement plans. Under 404(a)(5), plan sponsors have 60 days from the effective date of the 408(b)(2) plan sponsor disclosure rules (May 31, 2012) to provide fee information to participants.   

ERISA plan fiduciaries are required to ensure the fees and expenses the plan incurs are reasonable and appropriate. Causing the plan to pay more than “reasonable” fees and expenses could result in a breach of ERISA fiduciary duty and a “prohibited transaction” under ERISA.   

Workshop participants acknowledged that fee disclosure reporting and communication are complicated when plans maintain multiple investment providers—and even more so when legacy vendors raise questions on orphan and grandfathered accounts. They also expressed concerns when dealing with plans that contain individual contracts and/or custodial arrangements. In addition, disclosure obligations aren’t clear when the plan sponsor does not know whether its plan is subject to ERISA.  

In addition to these operational challenges, workshop participants agreed that many constituencies are uncertain about their obligations under the new rules. For example: 

  • Plan sponsors don’t understand the scope of their participant disclosure obligations under 404(a) or their fiduciary obligations under 408(b)(2). 
  • Advisers are unaware of their disclosure obligations under 408(b)(2) and have not embraced their role as a covered service provider. 
  • Service providers are focused on their own obligations; no one is focused on the broader issues of disclosure coordination. 


A fair number of workshop participants indicated they have responded to requests for proposals (RFPs) from non-ERISA 403(b) plans in which the fee disclosure information was modeled on the DoL rules. Some of the participants stated that a few existing non-ERISA clients recently have also requested more comprehensive fee disclosure information. The general consensus of both groups was that service providers working with 403(b) plans exempt from ERISA should expect to see requests from more and more plan sponsors on fees modeled on the DoL rules.

Workshop partipants developed a number of proposed solutions and recommendations to address key issues:  

Issue: Plan sponsors do not understand their obligations under 408(b)(2) and 404(a)(5).  

Recommendation: Those parties with closer relationships with plan sponsors (primarily advisers and third party administrators) should educate plan sponsors on disclosure obligations.  

Issue: Outline Roles and Responsibilities.  


1. Investment providers should communicate with plan sponsors the fee information they can disclose (prior to formally disclosing the information). 

2. Contracts between plan sponsors and service providers should include language that reflects disclosure obligations. 

3. Employers have an obligation to determine how to coordinate disclosure material and to deliver material to plan participants. 


Issues: 408(b)(2) compliance efforts have been topdown—many individual advisers are unaware of obligations. There are open questions concerning indirect compensation for both broker dealers and their advisers.  

Recommendation: All service providers need to evaluate their respective books of business to determine obligations under 408(b)(2) by answering the following questions: 

1. Is the company a covered service provider? 

2. If yes, under what category does the company fall (i.e., recordkeeper, plan fiduciary, etc.)? 

3. What are the company’s disclosure obligations in each respective category? 


Issue: Many service providers have outdated plan contact information. Who is the “responsible plan fiduciary?”  

Recommendation: Service providers should implement a process to update plan sponsor contact information for all covered plans.  

Issue: Are there other ideas for dealing with the unique complexities involved with 403(b) plans as they relate to the new fee disclosure rules?  

Recommendation: Ask NTSAA and the American Society of Pension Professional & Actuaries (ASPPA) to request a delay in the effective date and relaxed enforcement for 403(b) plans. 


According to the Summit report, the NTSAA Fee Transparency Task Force is in the final stages of the development of a fee disclosure document patterned after the DoL model comparative fee chart. The document will be available for nonERISA employer plans in the belief that employers and participants will benefit from total transparency as they exercise their freedom to choose their own investment options, and financial advisers. It is expected that the Task Force will launch the new document in the first quarter of 2012.