Deadlines loom on new retirement plan rules
Businesses of all shapes and sizes share many common objectives. High on that list is the pursuit and retention of top-notch employees.Employee benefit programs, such as 401(k) and 403(b) retirement plans, can often be the key to landing an attractive candidate or hanging on to a seasoned veteran. As if the care and maintenance of your company's retirement plan wasn't already central to your business health, new federal regulations, coupled with increased scrutiny of plan performance and hidden fees, now require the immediate attention and action of your company's officers to avoid compliance penalties.New laws governing employer-sponsored retirement plans are part of a strategy imposed by the ever-vigilant and newly reinforced U.S. Department of Labor to improve the disclosure of fees and any conflicts of interest surrounding retirement plans and service providers. The goal is for employers to fully understand plan fees and ensure the "reasonableness" of those fees, ultimately allowing employees to make better-informed investment decisions.The first looming deadline is July 1, when "covered service providers" (defined as any retirement plan vendor that receives $1,000 or more going forward for services to a plan paid for from plan assets) must comply with fee disclosure regulations by providing specific plan information in writing to your company, including: • All costs associated with the plan • A description of the services being provided • A clear statement of whether the provider is acting in a fiduciary capacity under ERISA. • The employer will need to determine the reasonableness of the fees being disclosed. One easy way to accomplish this is to benchmark the fees against comparable plans, thereby enabling the employer to fulfill this particular fiduciary responsibility under ERISA.The second deadline is Aug. 30, when employers that sponsor participant-directed plans must disclose specific information to all employees concerning participant-level fees charged to or deducted from their individual accounts.Retirement plan fees are complex and difficult to understand for the average employee. Many surprises lie ahead for employees (and questions for their management) as the fee structures and dollar amounts being charged become truly transparent for the first time. Fiduciary responsibilitiesEmployers are well advised to pay special attention to the fiduciary acknowledgement or disclaimer within the disclosures they receive, especially if the plan utilizes a resource for investment advice.Under the new regulations, many retirement plan practitioners will find themselves unable to legally acknowledge fiduciary status. This will prevent them from being able to legally offer investment advice, and in some cases, from continuing to provide a service they've been providing all along.If you have the responsibility for overseeing your company's retirement plan, acting as CFO or human resources manager, for example, consider a study conducted by AARP in February 2012.Titled "401(k) Participants' Awareness and Understanding of Fees," the study found that some 70 percent of employees are under the impression that their plan is free, with a high percentage of the remaining pool under the impression that their fees are paid by their employer. By Aug. 30, a bright light will be shown on this issue for all of your employees, who are likely to raise questions.If your service providers (plan record keeper, adviser, etc.) have not contacted you to discuss complying with these new regulations, delay no longer - contact them.The first round of disclosures is the responsibility of your covered service providers. Reach out to those firms and begin the dialogue.Under the new regulations, a covered service provider who fails to provide the appropriate disclosures could put your plan at risk of a prohibited transaction - and that could mean fines or penalties and a lot of lost time and headaches. Beyond that, the relationship would have to be terminated because every time fees are paid and no contract or disclosure is in place, another prohibited transaction would occur.The second round of disclosures aimed at your employees is purely your responsibility. Many service providers are preparing methods to assist employers with this portion of their responsibility. Start that conversation as well.Sean P. Riley of Eldridge Investment Advisors Inc., Manchester, is a Professional Plan Consultant and independent ERISA fiduciary. A Labor Department presentation describing the new compliance requirements can be seen at his firm's website, eldridgeco.com.