(b)lines Ask the Experts – Fee Disclosure and Legacy Vendor Contracts

February 7, 2012 (PLANSPONSOR (b)lines) – “As an ERISA 403(b) plan sponsor, I was pleased to see that, in addition to delayed effective dates for vendor and participant fee disclosure requirements,  the final rule under 408(b)(2) specifically exempts the same 403(b) contracts that may be excluded from the 5500 filing (certain contracts to which contributions ceased prior to 1/1/2009) from the vendor fee disclosure requirement.

“My question is, will these contracts be exempt from the participant fee disclosure requirements under 404(a) as well?”  

Michael A. Webb, Vice President, Retirement Practice, Cammack LaRhette Consulting, answers:  

Excellent question! Given the delayed release date of the 408(b)(2) final rule (2/2/2012), I believe everyone was delighted that the effective date of the vendor fee disclosure requirement is delayed until July 1, 2012, and the effective date of the initial participant fee disclosure requirement for calendar-year plans is delayed until August 30, 2012. And 403(b) plan sponsors should be pleased that 403(b) contracts that are exempt from the 5500 filing requirements are now exempt from the vendor fee disclosure requirement as well. As a reminder, these are contracts where a) contributions were ceased prior to 1/1/2009, b) all rights or benefits of the contract are enforceable against the contract issuer by the participant without employer involvement, and c) where participants are 100% vested in their benefit.    

But what about these 5500-exempt contracts and the 404(a) participant fee disclosure requirement? The final rule only deals explicitly with the 408(b)(2) vendor fee disclosure requirements; the only substantive reference to 404(a) is the related effective date delay. However, if one reads the final rule, they can obtain some potential insight into how the DoL would address 5500-exempt contracts in  the area of participant fee disclosure.   

Specifically, the DoL/EBSA states in the final rule that: “Plan sponsors and fiduciaries likely would be unable to comply with this rule because they often have no dealings with the relevant plan service providers and are unable to obtain information about these contracts and accounts.”   

If this is DoL/EBSA’s position with respect to vendor fee disclosure, it would seem illogical that the the agency would conclude that plan sponsors would be unable to obtain vendor fee disclosure information for exempt providers while at the same time be able to obtain participant fee disclosure information from these same providers. Thus, though the DoL has yet to take a formal position with respect to the 404(a) participant fee disclosure requirements, it appears to be a reasonable assumption that the agency would similarly exclude 5500-exempt 403(b) contacts from such requirements as well. Hopefully, the DoL/EBSA will issue guidance on this matter in the near future.  


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.