How do the new Financial Disclosure Regulations affect you?

The investment related disclosure requirements have had a dramatic impact on the financial industry, and many of our sponsors have been left wondering how this affects their retirement plans. There are two disclosures which you need to be aware of: 408(b)(2), and 404(a)(5).

The ERISA 408(b)(2) regulations regard expenses paid by the plan to service providers, and require the service providers to disclose fees and compensation to the plan. Your fiduciary responsibility regarding 408(b)(2) is to review fees and determine if they are reasonable. You are not required to hire a third party vendor to analyze your fees for compliance with 408(b)(2). While legitimate companies exist which offer this optional service, the industry has seen opportunistic companies intimidate plan sponsors into paying their company in what is really a thinly veiled marketing tactic. If in doubt, you should contact your financial advisor or TPA to get a reference to a reputable and independent third party for optional fee analysis.

The ERISA 404(a)(5) regulations address participant level expenses, and require the plan to disclose fees and compensation to the participant. It is ultimately the plan sponsor’s responsibility to ensure the disclosures were prepared by service providers and to distribute the disclosures to the plan participants. Many service providers are partnering with TPAs to consolidate participant fees on one notice.

The US Department of Labor issued Field Assistance Bulletin 2013-2 in July 2013, extending the 404(a)(5) deadline to February 25, 2014. This notice must be distributed at least annually. For some plan sponsors, the beginning of the year is not an ideal time to worry about these additional participant disclosures. Therefore, we advise our plan sponsors to choose a convenient month in 2014 to distribute the 2014 notice, as long as less than one year has passed since distributing the 2013 notice.