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New Retirement Plan Disclosure Requirements


The Department of Labor (DOL) has issued two new regulations aimed at empowering qualified retirement plan sponsors and participants to make better decisions with their plan assets.

1. Rule 408(b)2 will help sponsors obtain the information necessary to fulfill their fiduciary responsibility. With this information, plan sponsors must follow a ‘prudent process’ for determining that the services for which plan assets pay for are “reasonable”. Special attention must be paid to the fiduciary status of the entity providing services to the plan.

2. Rule 404(a)5 will make plan participants aware of the total fees that they pay for various investment related services. A written description of the services and total fees paid must be provided on the participants benefit statement.


In the most recent Deloittte “Annual 401k Survey”, 36% of plan sponsors indicated that they had difficulty obtaining a clear description of the fees associated with their retirement plan. When plan participants were asked in an AARP study whether they pay fees for their 401(k) plan, 65% reported that they did not pay any fees, and only one in six (17%) stated that they do pay fees, with the remainder not knowing whether they pay fees or not.

Over recent years, the way service providers are compensated (e.g., revenue sharing, selling agreements, or other “soft dollar” arrangements) has become increasingly complex. The complexity arising from these changes has also made it extremely difficult for many plan sponsors and fiduciaries to understand how and how much service providers are being compensated. This has been a major information gap that has prevented many sponsors from fulfilling their fiduciary responsibilities.

Additional information about rule 408(b)2

Under rule 408(b)2, service providers expecting to receive more than $1,000 in compensation over the life of their involvement with the plan must disclose the services they provide the plan, the total cost of such services, and their fiduciary status. These service providers include, but are not limited to, custodians, recordkeepers, third party administrators, and financial advisors.

All of the needed plan information can be obtained now that full disclosure is required by your service providers, but the disclosure alone is not the full picture. The plan sponsor must “ensure that arrangements with their service providers are ‘reasonable’ and that only ‘reasonable’ compensation is paid for services.” Plan sponsors must carefully consider these disclosures to determine if the agreements they enter into with their service providers are in-fact “reasonable agreements” for the level of services being provided.

Should there be an audit by the Department of Labor, plan sponsors will be asked to produce the agreements they have with their service providers that include the requisite disclosures. The auditor is also likely to want a description of the service provider selection process that was followed and to show evidence that a prudent decision making process was applied. Failure to comply with these requirements may result in prohibited transactions with substantial penalties.

Additional information about rule 404(a)5

The second aspect of the new DOL regulations is rule 404(a)5. This rule relates to the disclosures to plan participants that are in addition to the plan-related information that must be provided up front and annually. “Participants must receive statements, at least quarterly, showing the dollar amount of the plan-related fees and expenses (whether ‘administrative’ or ‘individual’) actually charged to or deducted from their individual accounts, along with a description of the services for which the charge or deduction was made. These specific disclosures may be included in quarterly benefit statements required under section 105 of ERISA.” These disclosures must be provided to plan participants prior to the applicability date of the regulation and any material changes trigger a required disclosure within 60 days of the effective date of the change.

Rule 404(a)5 allows for plan participants to gain ready access to a greater level of plan information including investment fees and plan expenses, for both “administrative” fees as well as “individual” fees, so they are able to make better decision with their investments. The plan level disclosures must include information regarding the right to direct investments, any plan restrictions, and a description of the types of fees and expenses associated with a plan account (e.g., loan origination fees, self directed brokerage fees, etc.). Any additional information requested by a plan participant must be made available, and the disclosure must be in writing.

Fiduciary Status

In addition to the amount of compensation being received, all fiduciaries providing services to the plan must also declare, in writing, their status as a fiduciary and what type of fiduciary role they are taking. This role can be a 3(38) fiduciary, who has the discretion to make investment changes to the plan, or a 3(21) fiduciary, who recommends investment changes for the plan and those changes are implemented by a 3(38) fiduciary.

Benefits of the Rule Changes

Rule 408(b)2 disclosure requirements can be of a great benefit to most plan sponsors who, up until this point, had difficulty in determining the amount of fees being charged to their plan and were unable to determine where conflicts of interest may arise. Substantial regulatory and litigation risks can be reduced by using this new information to review and select new service providers. Clear delineation of roles and responsibilities, including fiduciary status for various parties, will help hold all those involved responsible for their actions and promote the best interests of the plan participants.

Timing of the Rule Changes

1. Rule 408(b)2 is currently scheduled to go into effect on April 1, 2012
2. Rule 404(a)5 is currently scheduled to go into effect on May 31, 2012

No need to panic – but now is the time to start requesting the disclosure information and developing a formal process to make sure that each of your service provider’s fees are reasonable in light of their level of service and fiduciary status.

Next Steps

Once a plan sponsor receives compensation information from their providers, it is important to take the time to understand the fees and how their fees compare to industry standards. Reach out to peers, or review peer survey data to evaluate how the plan compares to industry standards. Plan sponsors may also want to submit a request for proposal (RFP) from various other service providers and/or financial advisors to determine what the competitive market is offering for similar services. It is not necessary to perform an RFP, as long as the plan sponsor has a documented prudent decision making process by which the current service providers were selected.

Sponsors will need to update or develop a written history of all fiduciary actions taken on behalf of the plan. Make sure there is a formal due diligence process outlined in the investment policy statement – and that this process is followed and documented.  Be cognizant of ways to lower expenses whenever possible without sacrificing benefits and services.

Finally, stay informed. Lawsuits and legislative changes can and will impact the plan over time; it is important to review the plan document and make any needed amendments.

Please don’t hesitate to reach out to Dennis Gogarty at Raffa Wealth Management with any questions. Dennis can be reached at 202-955-6734 or

1 Deloitte IFEBP Annual Survey, “Annual 401(k) Survey – Retirement Readiness”

2 AARP (2011, November 17).  401(k) Participants’ Awareness and Understanding of Fees.  Retrieved from

3 US Department of Labor (2011, November 17). Interim Final Regulation Relating to Improved Fee Disclosure for Pension Plans.  Retrieved from

4 US Department of Labor (2011, November 17). Interim Final Regulation Relating to Improved Fee Disclosure for Pension Plans.  Retrieved from

About Raffa Wealth Management

Raffa Wealth Management is an independent registered investment advisor offering highly customized investment consulting and portfolio management services to qualified retirement plans, nonprofits, and high net-worth investors.