Fee Disclosure - Transparency For Some?

  

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The Department of Labor's long-awaited 408(b)(2) project wrapped up in 2010, but it seemed to require total transparency at the participant level only for some.  The Plan-Level Rule requires the bundled record keeper to furnish fiduciaries a reasonable and good faith estimate of the cost of recordkeeping even where there is no explicit charge.  In contrast, if the plan's administrative expenses are paid from the annual operating expenses of the investments, the Participant-Level Rule requires merely a general disclosure to participants.  Yet, if administrative fees are charged against individual accounts, the Participant-Level Rule requires specific itemization and description of fees on participant statements.

Our Take

These rules continue the uneven playing field in favor of the bundled model at the participant level, because asset-based administrative fees can be hidden in the investment fees.  Because participants will tend to ignore general disclosures but give undue attention to specific fees of any size that are prominently disclosed, the DOL has made it harder for plan sponsors who want to eliminate the inequities of revenue sharing.