March comes in like a lion and goes out like a lamb. Plan sponsors should expect nothing of the sort. The end of March, as of this writing, is scheduled to usher in the DOL’s new fee disclosure requirements. Originally slated to become effective in July 2011, the date got pushed back due to industry pressure. It may get pushed back again, but these requirements won’t be delayed forever.

Rest assured, however, the lions of the 401(k) industry will begin duking it out well before the effective date. Already in January 2012, Vanguard has come out with a controversial new “low-cost” 401(k) package. The controversy deals with both fiduciary issues and its definition of fees. It’s this latter controversy that signals the start of hostilities. Industry heavyweights, long concerned more with keeping clients captive with one-stop-shopping schemes, will begin trying to redefine what “fee” is.

Truth be told, some fees matter and some fees don’t matter. Savvy sales folks will try to convince 401(k) plan sponsors to pay more attention to the fees that matter than to the fees that don’t matter. Smart 401(k) plan sponsors will know this. Smart professional fiduciaries will rub the faces of every 401(k) plan sponsor in the reality of fee disclosure until they all become smart.

What’s the best strategy for smart 401(k) plan sponsors in the new world of fee disclosure? First, it’s to know what fees matter. Second, it’s to make sure fee data is obtained for each service. The DOL provides mixed guidance on this. For one, the DOL suggests 401(k) plan sponsors review fees that don’t matter. Additionally, the DOL literature emphasizes total fees without explaining the need to account for fees separately by service type (the only way to insure the “best of breed” of the ideal 401(k) plan, according to a 2010 Northern Trust analysis).

Here’s what smart 401(k) plan sponsors will do. They’ll focus first on out-of-pocket fees (i.e., the ones that produce invoices). Those are the easiest to account for. Next they’ll dig deeper into their investment offerings and uncover all revenue sharing and 12b-1 arrangements. A case can be made that revenue sharing and 12b-1 arrangements are a good predictor of poor investment performance. In fact, there’s a study that shows this. And speaking of a fund’s expense ratio, smart 401(k) plan sponsors will know not to use them to compare funds with different objectives.

Finally, smart 401(k) plan sponsors will make sure they know exactly what they’re paying for each service—trustee services, custodian services, recordkeeping and TPA services, auditing services and investment management services. (All smart 401(k) plan sponsors know what these services are and how they impact the plan.) By breaking out the fees this way, smart 401(k) plan sponsors will make sure no one provider is using fees from one service to subsidize another service.

Smart 401(k) plan sponsors who use these two strategies will ensure they’re not lambs sleeping among lions—the best strategy for surviving March.

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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).