- Confirm that all service providers have made the required disclosures. If a service provider that receives at least $1,000 in fees has not made a disclosure, the plan sponsor must demand a disclosure within 90 days and, if it is not provided, notify the DOL of the failure. The plan sponsor should also review the disclosure to confirm that it meets all of the regulatory requirements and provides sufficient information for the sponsor to determine if the fees are reasonable for the services provided. If it does not, the plan sponsor should request the items needed for complete disclosure. If the provider does not provide any requested disclosures, the sponsor may have to terminate the relationship.
- Determine the provider’s fiduciary status. Particularly if the provider is receiving fees related to investment advice, there is no legal or practical reason that the provider should not have acknowledged its status as a fiduciary. If the provider attempts to avoid that status, the plan sponsor should evaluate whether the relationship should continue.
- Compare the disclosed fees with contractual or promised fees. The fees should not be different from those disclosed in the provider’s service agreement or be used to secure the business. If the fees paid exceed the amount agreed upon, the plan sponsor should request a return of the excessive fees.
- Determine whether the fees are reasonable. The prohibited transaction rules require that a provider’s fees be reasonable for the services provided. The preferred method to make this determination is to engage an independent benchmarking service to compare the fees charged in light of the services provided against all plans of similar size and characteristics.
At the fee level, the description must disclose: any start-up fee; ongoing fee or expense; and commissions charged for purchases and sales of securities including sales loads. The statement should advise participants to ask the provider about all investment related fees. Moreover, the participant must be provided a quarterly statement of fees actually charged against the account for the preceding quarter. Q&A 30 indicates that any window that offers more than 25 investment alternatives must provide the designated investment alternative fee information for: (1) at least three investment alternatives: equity, fixed income and balanced; and (2) every other investment in which at least the greater of five participants or 1% of all participants are invested.
Because these disclosures are required by August 30, 2012, plan sponsors should act immediately to:
- Identify any brokerage windows provided;
- Contact the broker that provides the window requesting the information necessary to meet the general disclosure requirements;
- Work with the broker to identify the three investment alternatives that will be utilized to meet the detailed fee disclosure requirements; and
- Work with the broker to identify those investments in which the greater of five participants or 1% of all participants were invested and to collect the information needed to satisfy the detailed fee disclosure requirements.