Update on Retirement Plan Fee Disclosure Rules

From Sungard-

The DOL originally issued the service provider fee disclosure regulations as interim final regulations. That meant they would go into effect without further action, but the DOL was still working on them. The preamble to the regulations announced one of the issues that might change:

The Department is considering adding a requirement that covered service providers furnish a “summary” disclosure statement, for example limited to one or two pages, that would include key information intended to provide an overview for the responsible plan fiduciary of the information required to be disclosed. The summary also would be required to include a roadmap for the plan fiduciary describing where to find the more detailed elements of the disclosures required by the regulation.

Now we are more than 5 months past the originally scheduled effective date of the service provider regulations, with only 3 months until the currently announced April 1, 2012 effective date, and the DOL has yet to issue final regulations. Many believe that the possible addition of a requirement to add a summary disclosure statement is a major part of the reason for delay. It may well represent the only truly major change in the final regulations.

Some practitioners question the need for a summary statement. For many service providers, the entire fee disclosure can be handled in a page or two at most, the anticipated length of the summary. But for other service providers, including large financial institutions or their affiliates, the summary is potentially a major hurdle. These providers frequently enter complex bundled arrangements which require detailed information. They may also be required to provide information about investment products offered to participants, including: (1) sales charges (sales loads, sales charges, deferred sales charges, redemption fees, surrender charges, exchange fees, account fees and purchase fees); (2) expense ratio; and (3) ongoing expenses (wrap fees, mortality and expense fees). Some vendors hoped to provide this information by referring back to the prospectus for each investment. If the requirement of a “roadmap” means that the vendor must identify the page(s) where the information is found, that will involve a complex programming challenge that cannot be accomplished in the limited time available before April 1.

In any event, the DOL surely cannot delay much longer in deciding on how to handle the regulations. Either they must further delay the effective date (thereby also delaying implementation of the participant fee disclosure rules), or they must issue rules for the April 1 statements with very little change from the interim rules.

We will issue a technical update as soon as the DOL decides, one way or the other.