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CCH® PENSION AND BENEFITS — 5/16/07

ASPPA’s Graff sees increased focus on 401(k) fees

There is an increased legislative and regulatory focus on investment-related fees charged by service providers to 401(k) plans, said Brian Graff, executive director and CEO of the American Society of Pension Professionals and Actuaries (ASPPA). In remarks to the Great Lakes Benefi ts Conference, co-sponsored by the IRS and ASPPA on May 3, 2007, in Chicago, Graff outlined recent regulatory initiatives on 401(k) plan fees that are currently being pursued by the Labor Department. He noted that the 401(k) fee issue may also be addressed by future legislation.

Recent DOL fee initiatives

Graff identified three recent Labor Department regulatory initiatives dealing with 401(k) plan fee and expense transparency:

• proposed Form 5500 Schedule C changes for 2008;
• proposed amendments to the statutory PT exemption under ERISA §408(b)(2); and
• proposed changes to the regulations under ERISA §404(c).

The proposed modification of the 2008 Form 5500 Schedule C, which Graff said would be issued in May or June, would require plan administrators to identify all service providers receiving $5,000 in total compensation (whether “direct” from the plan or plan sponsor or “indirect” from any other source) in connection with (1) services provided to the plan or (2) the person’s position with the plan. In addition, plan administrators would be required to indicate for each service provider whether the service provider received any indirect compensation from a third party.

Later this summer, Graff expects the Labor Department to complete the ERISA §408(b)(2) regulatory project. ERISA §408(b)(2) provides a statutory prohibited transaction exemption allowing a plan to enter into a “reasonable contract or arrangement” with a party in interest. According to Graff, the DOL is considering amending this exemption to eliminate the uncertainty as to what constitutes a “reasonable contact or arrangement” under the exemption. It is possible that the DOL will require the disclosure of compensation received from all sources, including third parties, as a condition of relief under ERISA §408(b)(2).

Finally, Graff expects the 404(c) regulatory project to be completed by the end of the year. ERISA §404(c) provides that a plan fiduciary is not responsible for participant investment decisions where certain conditions are met. The current 404(c) rules require the plan fiduciary to make certain fee disclosures automatically and on request in order for a participant to be considered to have made an informed decision for which a plan fiduciary would not be liable. According to Graff, the Labor Department is developing a proposed change to the 404(c) regulations designed to clarify what fee information must be provided to participants to enable them to easily compare fees among a plan’s investment options.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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