There are many aspects to the financial world that can be confusing for people. This is especially true when it comes to all of the disclosures that you have to go through from various service providers that you work with through your business. One of these items that may cause some confusion is the ERISA Section 408(b)(2) Plan Fee Disclosures. Here, you will learn everything that you need to know about the 408(b)(2) and how it can affect you.
The Employee Retirement Income Security Act (also known as ERISA) Section 408(b)(2) was enacted on July 1, 2012. This act requires that all retirement plan service providers, subcontractors, and their affiliates, must disclose their compensation plan to the 401(k) Plan Sponsors. It also mandates that these dollar disclosures, both hard and soft, need to be made in a reasonable amount of time ahead of parties entering into a contract. When the contract is renewed, any changes to the contract must be disclosed as well as whenever there are any changes to the fees. This makes it so that plan providers have a fiduciary duty to manage the fees for their plans as well as ensuring that sponsors understand any “hidden” or indirect compensation that goes back to the providers. This is especially true for any compensation that is $1,000 or more.
So, what does all of this mean to you as a company looking for a provider? 408(b)(2) disclosures provide responsible party’s the information they need to benchmark their 401k retirement plan program. Fee benchmarking, which is the comparison of these fees across different companies, is there to allow the consumer to purchase from a provider that offers them the most reasonable fees while also showing consumers any companies that charge excessive 401(k) fees. When you are deciding on which provider to sponsor a 401(k) from, collect all of the information that you can from this disclosure. This includes any fees, services, and qualifications.
The depth of your benchmarking report will impact your ability to draw correct conclusions about fee reasonableness. Your failure to comprehensively consider the services rendered, who pays for those services, and how those services are paid for are all-important steps in proper benchmarking. Taking short cuts in the collection and evaluation of pertinent data, subjects benchmarking results to criticism the process was imprudent.
If this sounds a bit complicated for you, Wellington Retirement Solutions, Inc. offers a free Fee Benchmarking Report. You shop around for everything else for your business; why not use a comparison like a fee benchmarking report to help you make this important decision?
- Robert J. Alexander
Mr. Alexander is a Pension Consultant with Wellington Retirement Solutions, Inc. and has over 10 years of experience in the industry. Wellington Retirement Solutions, Inc. can help you determine what type of 401(k) Plan is ideal for your business. Even if you already have a 401(k) Plan, allow us to review your Plan provisions for peace of mind to know that the design of your 401(k) Plan meets your goals & objectives. We are committed to providing personal service excellence. If you have any questions regarding the information in this article then please reach out to one of our specialists at (888) 934-4015.