Current Thinking

What Do The New Fee Disclosure Rules Do?

The new fee disclosure rules are designed to make the process easier for both plan sponsors and participants to compare plan costs and fees, and whether or not these fees represent good value for the services being provided.


The rules apply to 401(k) plans, profit sharing plans, money purchase plans, pension plans, and 403(b) plans that are subject to ERISA.


The effective date for service provider disclosure to plan sponsors is July 1, 2012. If your plan operates on a calendar year basis, the latest date for furnishing participants with their initial participant disclosures (all disclosures other than disclosures required at least quarterly) is August 30, 2012; for plans that operate on a fiscal year basis, you have until the later of 1) 60 days after the first day of the first plan year beginning on or after November 1, 2011, or 2) August 30, 2012.


All plan sponsors have a fiduciary responsibility under ERISA to ensure that a retirement plan is being operated in the best interests of plan participants. A critical part of that responsibility includes evaluating plan fees and expenses and determining if plan costs are fair and reasonable. The new rules will make it easier for you to determine what you are paying in fees, to compare costs and fees and whether or not the fees represent good value for the services being provided.


Plan sponsors must provide participants and beneficiaries detailed information about fees, expenses and investment performance.


The first part of the new fee disclosure rule requires that retirement plan service providers to disclose the fees charged to manage your plan. They are required to provide plan sponsors with a detailed “Fee Disclosure Statement” that details all of the fees that are charged for the management of your plan.


Service Providers are required to provide you with the following


General plan information:

  • A current list of investment options
  • An explanation of how individuals provide investment instructions under the plan
  • If applicable, descriptions of a brokerage option and/or similar types of outside investments available under the plan.

Administrative Expense information:

  • An explanation of fees and expenses that may be charged to or deducted from all individual accounts (e.g., plan audit fee, recordkeeping fee). Individual expense information:
  • An explanation of fees and expenses that may be charged to or deducted from an individual’s account based on his or her actions (e.g., loan origination fee, qualified domestic relations order (QDRO) fee, hardship withdrawal fee, distribution processing fee).

Investment-Related Information

  • One-, five-, and 10-year returns for all mutual funds and other plan investment options that do not have a fixed rate of return.
  • Annual rate of return and investment term of fixed-rate investments.


The following investment-related information must be provided to participants and beneficiaries on or before the date they are first eligible to direct their investments and on an annual basis thereafter. Plan sponsors are required to provide detailed information to participants about fees, expense and investment performance.

Investment-Related Information

  • One-, five-, and 10-year returns for appropriate benchmark indexes (to match plan investment performance data periods). Fee and expense information:
  • Non-fixed-rate investments: Total annual operating expenses expressed as a percentage and as a dollar amount per $1,000 invested. Any shareholder-type fees or restrictions on purchases or withdrawals must also be provided.
  • Fixed-rate investments: Any shareholder-type fees or restrictions on purchases or withdrawals. Internet resources for research:
  • Addresses of websites that can provide additional detailed information about the investment options. Glossary of common investment terms:
  • A general glossary of terms to assist participats and beneficiaries in understanding the plan’s investment options or the address of a website that can provide access to a glossary.

Additional quarterly disclosure:
Individuals are to receive quarterly statements that report the dollar amount of any fee or expense deducted from their account along with a description of the services related to the fee or expense. This information will most likely be incorporated into quarterly participant statements.

DOL Model Chart
The DOL has issued a model chart to help satisfy the new requirement that plan investment options be provided in a comparative format. The chart is broken down into several tables
that focus on comparing investment returns, fee and expense information, and annuity options.

How should I handle participant questions on fees?
Depending on the size of your organization, you might want to designate and train one or more people to answer questions about fee disclosure and your retirement plan. Your service provider can also help by providing you with Q&As from your employees.

What is a bundled approach and an unbundled approach, when related to retirement plans? What does this mean in terms of retirement plan providers and the fees they charge?
To begin to understand about retirement plan fees, you will need to determine the parties that are providing the services for your plan, as well as the compensation that they receive for the plan services they provide. Services can be provided by one provider or
service arrangements may combine several providers to service your 401(k) plan, including a Plan Administrator, Third Party Administrator (“TPA”), Recordkeeper, Trustee and Custodian, Investment Manager, and Legal Counsel.

When one retirement plan service provider serves in most or all of these roles, they are referred to as a full-service provider. Firms can offer all services, but may have alliances or service arrangements to fill in for a function that they do not provide directly.

A 401(k) plan with a bundled approach usually obtains all services needed from one firm, which streamlines administration for the plan sponsor, and is typically less expensive. When the various roles such as that of TPA, recordkeeper, investment manager, trustee, custodian and legal counsel are outsourced to multiple firms,it is considered an unbundled approach to a 401(k) plan. Because this type of approach has many parties involved in the
process, administration and fees for plan sponsors can become complicated and costs may increased because of the many parties that have to be compensated.

What are the different types of fees that can be charged within a retirement plan? Who pays those fees?
There are generally three different categories of plan fees: One-time fees, ongoing fees and investment fees.

What are one-time fees and what do they include? Who pays these fees?
One-time fees are the initial plan fees that are charged for the set-up and conversion of your plan, and cover the cost of setting up or transitioning a plan from one provider to a new provider. They can include plan set-up fees, including installation fees, enrollment expenses, plan conversion fees, including contract and service termination charges, plan design fees and document drafting fees. These fees are typically paid by the plan sponsor.

What are ongoing fees and what do they include? Who pays these fees?
Ongoing fees include the cost for the day-to-day administration and recordkeeping of the plan and maintenance of participant accounts. Typical ongoing fees would be: plan administration, transaction processing services, recordkeeping services, custodial services, trustee services, legal services, plan design services, compliance services, plan audit services, and communication and education services.These fees may be paid by the plan sponsor, the participant or both, depending on how they are structured.

What are investment management fees and what do they include? Who pays these fees?
Investment management fees include the management, operations and marketing of investment funds, and are charged for managing the investments in a retirement plan. There may be fees charged when a fund is purchased or at the time of sale, such as a front-end or back-end load, or fees charged for sales commissions, such as a 12(b)-1 fee, or, if it is an insurance product, a wrap fee. These fees are typically paid by a participant, but sometimes by the plan sponsor.

How are fees assessed?
There are essentially three different types of ways that plan fees are structured; administrative fees, asset based fees (also referred to as investment expenses) and service or transaction fees.

How are administrative fees structured?
Administrative type fees are paid directly by the plan sponsor, as billed by the service provider, and/or by the participant as a deduction from the participant’s 401(k) account. These fees are typically one-time or ongoing fees.

What are Asset Based fees?
Asset based fees are the fees paid by the investors in a particular fund, to manage and operate an investment fund. They can also be referred to as investment or asset management fees, or expense ratios. Asset based fees typically represent the greatest share of retirement plan expenses.

How are Asset Based fees structured?
Asset based fees are express in terms of basis points (bps). 1 basis point equals 1/100 of a percentage point. Asset based fees are charged as a percentage of your account balance, so the higher your balance, the more you will pay.

If 1 basis point equals 0.01% or 0.0001, than an investment fund with an expense ratio of 50 basis points would cost $500 annually, based on a $100,000 account balance in your retirement plan.

$100,000 retirement plan account x 0.005(50bps = 50/100% or 0.005) = $500 annually

Why do investment management fees vary so much?
Investment management fees can vary significantly from one investment fee to another, based on the complexities involved in operating an investment fund. For example, fees for indexed investment options are typically lower than those for actively managed funds because there is less “management” of an indexed bund as compared to an actively managed fund. Income investments typically cost less than equity investments, but fees for different types of equity investments vary widely, based on whether they are domestic equities, international equities or sector funds.

What are service, or transaction fees?
Service, or transaction fees are charges for plan features that you may use and are typically based on how often a transaction is processed.

Who pays for service or transaction fees?
The plan sponsor may pay most of these fees, but there are occasions when a participant will pay for a particular transaction, such as a plan loan, or a self-directed brokerage feature.

About the Author

Scott McCarthy

Scott directs Pentegra’s Client Transition operations, where new business implementation and plan conversions take place ensuring that the first step in the client experience is successful. Scott and his team have successfully converted hundreds of plans with varying demographics and plan parameters from a variety of providers.


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