April 1, 2012 looms as a date that may live in infamy for some 401(k) service providers. That's when the DOL's new 408(b)(2) regulation takes effect. This regulation requires all plan service providers to disclose their compensation to 401(k) plan sponsors. Service providers include anyone acting as a fiduciary, registered investment advisers, brokers, recordkeepers, third party administrators and consultants. But that's not the surprise.
What 401(k) plan sponsors might find shocking will appear in the compensation section of the service provider disclosure (services and a declaration of fiduciary status must also be disclosed). Compensation is defined as anything received directly and indirectly. Indirect compensation can include cash or non-cash items the service provider receives as a result of providing a service to the plan. Most plan sponsors will already know the amount of direct compensation. This indirect compensation may startle them.
Prior to 408(b)(2), service providers had no requirement to disclose indirect compensation (we'll leave it up to ethical philosophers to determine if they had an obligation to disclose). Many 401(k) plan sponsors, who are paid to specialize in their company's product, not in their retirement plan, simply don't have the experience or know-how to ask the right questions of service providers in order to uncover these hidden fees. This all changes as of April 1, 2012, and that might just scare some 401(k) service providers.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
