Groups Weigh In on Proposed Fee Disclosure Regs

June 11, 2014 ( – From excluding large plans to asking for wording that would prompt consultation with the plan adviser, organizations are petitioning the Department of Labor (DOL) about the proposed 408(b)(2) guide.

In March, the DOL proposed changes to Section 408(b)(2) of the Employee Retirement Income Security Act (ERISA), which would simplify the way fee data is presented to some plan sponsors and participants (see “DOL Proposes Service Provider Fee Guides”). Existing 408(b)(2) rules require companies that provide certain financial services to employer-sponsored 401(k) plans to furnish detailed information about those services and the compensation they receive, including data about payments from third parties and revenue-sharing agreements.

Organizations have made comments about the proposed DOL changes to ERISA Section 408(b)(2). The ERISA Industry Committee (ERIC) is asking for large plans to be excluded from the DOL’s  proposal to require service providers to distribute a guide or similar tool to fiduciaries.

In a letter to the DOL, ERIC says while it agrees that a guide requirement might be beneficial to fiduciaries of small and medium-sized plans, it asks that the DOL recognize the difference between large and small plans, noting that a guide requirement would not benefit large plans.

“Fiduciaries of very large plans have sophisticated professionals and advisers, which enable them to obtain and analyze the relevant information to properly evaluate their service providers,” says Kathryn Ricard, ERIC’s senior vice president for Retirement Policy, in the letter. The Washington, D.C.-based Ricard adds that fiduciaries “typically also have relationships with their service providers that enable them to get clarification and additional details, as needed.”

ERIC also notes that a proposed guide for large plans would be unduly burdensome and inconsistent with the president’s executive orders that direct agencies to refrain from issuing unnecessary regulations and to seek ways to reduce and simplify regulatory burdens.

ERIC also cautions that the proposed guide requirement would generate additional costs to plans, participants and service providers without a corresponding benefit to participants.

“A guide or summary would result in an additional expense to service providers that would ultimately harm the plan participants as the additional costs that the service provider incurs to prepare the guide will likely be passed through to the plan and, in many cases, to the plan’s participants,” says Ricard.

The ERIC letter urges the DOL to treat very large plans differently from small and medium-sized plans for purposes of any guide requirement, in keeping with the way the DOL has treated large plans differently from small plans in a variety of other contexts. For purposes of the proposed guide requirement, ERIC asks that the DOL define large plans as those having 5,000 or more participants or at least $100 million in assets, noting that these thresholds have been used in a variety of contexts involving retirement plans.

The full text of the ERIC letter can be downloaded here.

Other organizations have voiced their own comments about the proposed DOL changes to ERISA Section 408(b)(2). For example, the Retirement Advisor Council (RAC) took issue with the DOL’s proposed methodology for assessing the impact of 408(b)(2) fee regulations (see “Retirement Advisor Council Sees Flaws in 408(b)(2) Review”). The DOL said it would be conducting focus groups among small plan sponsors—i.e., those serving fewer than 100 participants—to determine if the proposed fee guides are necessary. While it supports the DOL’s efforts, the RAC has concerns that sampling only small plan sponsors for focus groups will lead to an underrepresenting of the concerns of large plan sponsors—who are, the RAC says, far more influential than small plan sponsors when it comes to retirement readiness in the United States.

Shorter Is Not Necessarily Better

In a new comment letter, the Retirement Advisor Council wants the DOL to add this sentence to its proposal on disclosure language: “Please consult with the Professional Retirement Plan Advisor of your organization before filing this document.” This would be an alternative to mandating a written disclosure guide.

Its thinking is, more than two-thirds of plan sponsors already rely on a professional retirement plan adviser to assist in understanding the fees providers charge for their services. The same study they site says 67% of these clients rate their adviser outstanding for this particular service.

Periodic cost and service benchmarking are more beneficial to plan fiduciaries than fee disclosures combined with the proposed guide, the council says.

Do simpler, shorter disclosures always make for less complex decisions? The council says not necessarily. They illustrate this with side-by-side pictures from a grocery store. An electronic price label gives the unit and retail price for granulated sugar. A much longer nutrition label gives details and facts about a healthy food product. A longer plan sponsor disclosure itemizing the contents of the retirement plan service package is, in fact, preferable, the council argues.

The comment letter by the Retirement Advisor Council can be read here.

Costs and Other Concerns

The Securities Industry and Financial Markets Association (SIFMA) expressed concern that the proposal would impose “additional and unnecessary costs on service providers where no evidence exists that the current disclosure rules are inadequate.”

Creating plan-by-plan guides means additional costs, SIFMA contends, which will have an adverse impact on participants’ efforts to save for retirement, since these costs would be passed on to plans and participants.

SIFMA points out the DOL has been in the forefront of reminding plan fiduciaries and participants that fees are an important focus of inquiry for both plans and participants, and that fees can significantly reduce retirement income.

The association calls the DOL’s layer of an additional obligation “ironic,” and labels the obligation to create the guides itself “a Department-perceived gap that does not appear to be shared by the plan fiduciary audience for these disclosures.”

SIFMA expresses concern that parts of the proposal are already in use, and are simply common sense. “For example, the proposal requires the identification of a person to answer questions or provide additional information. Virtually all of our members are already providing these contacts, as the [DOL] understands from its review of selected disclosures.” The group states that if service providers have not identified a contact, it believes providers would find it reasonable to do so, and would do so.

The letter calls the DOL’s evidence anecdotal, un-cited and does not substitute for objective evidence that would illustrate the need for more regulation. The proposal would mean significant additional cost, which has not been justified, SIFMA says.

The comment letter by SIFMA can be accessed here.


—Jill Cornfield and Kevin McGuinness