Fee Disclosures for Plans on a Recordkeeper Platform

“My recordkeeper handles my fee disclosures.”  Sure about that?

Many plans required to provide annual participant fee disclosures under ERISA 404(a)(5) utilize a recordkeeper’s services.  A recordkeeper calculates a participant’s plan account balance on a daily basis by money type and investment.  Often participants can access their account balance detail via a recordkeeper’s website.

The annual participant fee disclosure must contain information about fees that may be charged to participant accounts.  The initial annual participant fee disclosure was provided in 2012.  Because each plan has many potential service-providers that may be paid from participant accounts, the task of generating the fee disclosure was daunting.  Each plan service provider is not necessarily aware of the other service providers, and even if they are, they may not know the fees the other service providers may charge.  To add to the confusion, in an effort to best assist its clients, each plan service provider was sending alerts to its clients about the disclosures, often including a sample disclosure, making it difficult for plan sponsors to determine exactly what they should be providing to their plan participants.

Now that the dust has settled and the initial disclosure is out, it is clear that the majority of recordkeepers assist plan sponsors by providing a template of the fee disclosure.  Often plan sponsors are allowed to add or edit the content of that fee disclosure, so fees for their other service providers can be incorporated therein.  The majority of recordkeepers offer to mail the approved fee disclosures to plan participants who maintain a benefit, often including the disclosure with one of the quarterly (or other periodic) account statement mailings.

In many cases utilizing the recordkeeper’s disclosures and taking advantage of the mailing assistance makes a lot of sense for a plan sponsor.  However, a plan sponsor will need to review exactly what is included in the notice and to whom it is being mailed to ensure compliance.  Here are some considerations for plan sponsors utilizing their recordkeeper’s disclosures:

  • You may need to supplement or alter the recordkeeper’s disclosure if:
    • The plan has assets for which the recordkeeper does not account.
      • For example, if the plan allows participants to choose between two investment institutions, the disclosure must state that.
    • The disclosure does not adequately describe the plan’s investment arrangement.
      • For example, if participants are allowed to direct the investment of only a portion of their account balance, the disclosure must describe that.
    • The fees charged to participant accounts by other service providers are not included.
      • For example, if your Third Party Administrator receives a distribution or loan processing fee from a participant’s account, the disclosure must state that.
    • The plan has an investment manager.
      • If the plan has an investment manager, that information must be included in the disclosure.
  • You may need to supplement the recordkeeper’s disclosure mailing.  Often a recordkeeper mails the disclosure only to participants with a current account balance.  The disclosure must be provided to:
    • Eligible Employees, regardless of whether the individual currently contributes to the plan or maintains a plan balance.
    • Terminated and retired employees maintaining a balance in the plan.
    • Beneficiaries of deceased participants maintaining a balance in the plan.
    • Alternate payees (awarded balances under a Qualified Domestic Relations Order).

Finally, it is important to note that failure to adequately include required information in the fee disclosure may prohibit the withholding of fees from participant accounts.

The timing of the disclosures is also something that has caused some confusion.  Recently, I wrote a blog in an attempt to clarify the timing of these disclosures.  Please visit the blog by clicking here.

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Stephanie L. B. Terry Stephanie L. B. Terryis a senior manager with Pinnacle Plan Design, LLC

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