1. Plan service providers don't provide the proper fee disclosures

Many small to medium-size 401(k) plan sponsors may not realize that they need to receive fee disclosures from their plan providers by July 1 to comply with new regulations under the Employee Retirement Income Security Act that requires them to disclose plan and investment-related information to participants by Aug. 30, said Ary Rosenbaum, managing attorney with The Rosenbaum Law Firm P.C. in Garden City, New York.

"Most plan sponsors aren't aware of what fee disclosures are all about and even if they understand the idea, they don't understand their responsibility, which could cause them a lot of harm," Rosenbaum said.

Under the participant disclosure rules, plan sponsors must tell plan participants what expenses and fees are deducted from their accounts. Many plan administrators, even if they receive the required disclosures from their plan provider, may file the information away in a drawer and believe that's the end of it, Rosenbaum said. But, they have to determine whether the fees they are paying to the provider are reasonable enough, Rosenbaum said. To do that they must hire a company that offers benchmarking services or shop their plan out to other service providers to determine if the fees are reasonable compared to the services they are receiving.

Many in the industry don't believe there is enough time between when providers must give plan sponsors fee disclosure information and the time when plan sponsors must disclose that information to participants.

Next: Are the fees charged and investments chosen reasonable?

2. Plan Sponsors must determine if the fees they've been charged and the investments they've chosen are reasonable and in the best interest of participants

Many plan sponsors were told they were not paying any administration fees and it is going to come as a shock that the excessive investment fees they were being charged were actually for plan expenses, Rosenbaum said. "It is going to be a shock to a lot of people that they were not only paying for administration, but they were paying a lot for it. It will be a shock to those who knew what they were paying when they see what is out in the marketplace," he added.

"At issue is how plan sponsors pay for the cost of their plans—important decisions that may significantly constrain the investment selection process and disproportionately allocate costs," according to a report by The Allen Investment Group of Raymond James. "Frequently, plan sponsors design investment menus to specifically offset plan expenses by incorporating investment options and share classes that contribute revenue from their internal expenses back into the plan. As a result of cost assignment decisions, plan sponsors may have failed to consider the complete universe of investment choices, share class options and implementation scenarios available on their 401(k) platforms, inadvertently increasing expenses and reducing investment returns."

The report added that plan sponsors will now have to justify their decisions to participants.

David Wray, president of the Plan Sponsor Council of America, said that the biggest problem with the regulations is that plan sponsors will receive a ton of information from plan providers that includes the information they need, but won't be on a single sheet of paper. "Embedded in this information will be detailed fee information that the plan sponsor will be required to identify and evaluate. For large employers, this is no problem. They have internal expertise and are advised by the country's top retirement plan experts. In fact, they are already getting this information. For small and medium-sized employers the situation is different. Most do not have internal expertise and their advisor, to the extent they have one, is an expert on investments but not the technicalities of ERISA," he said.

"The one group where this will be a wakeup call is for small plan sponsors who haven't adjusted their fee arrangements since they initiated the plan many years ago," Wray said. "Fee bracket creep is an issue."

Wray explained that the original fee arrangement when a plan is first formed is typically high because there are virtually no assets in the plan. The fee is supposed to go down as assets grow and account balances grow, but it is the plan sponsor's job to have the discussion with their provider.

"As account balances grow, the plan is eligible for reduced fee arrangements. However, if the plan sponsor doesn't go to the provider and ask for them, these lower fee arrangements don't occur," Wray said.

He added that he doesn't believe plan sponsors have given fees much thought because they have mostly focused their attention on plan performance.

3. Don't know fiduciary responsibility

The new fee disclosure regulations plant even more responsibility on the shoulders of plan sponsors, which is daunting on many levels, according to a recent report by Roland Criss Fiduciary Services, "A Different Perspective on the New DOL Regulations." The biggest problem is that everyone assumes plan sponsors know that they have even more responsibility under the new regulations, when many plan sponsors are uninformed. Second, the increase in responsibility requires plan sponsors to spend more time on analysis, diligence and accountability.

According to the report, plan sponsors will need to develop new risk management strategies so they don't come into conflict with regulatory agencies.

According to Vanguard, in a Q&A about fee disclosure to plan sponsors, "unlike some of the other disclosure rules under ERISA, in which failure to provide required disclosure in a timely manner may result in a fine, failure to provide required information under the participant fee disclosure regulation may result in a breach of fiduciary duty. This could expose the plan fiduciaries to both professional and personal liability if the participant can demonstrate that he or she had losses related to the failure to disclose the required information."

4. Being penalized by the DOL for breach of fiduciary duty

If plan sponsors don't get the disclosures they need from their plan providers, they must submit a request to them in writing. If the plan providers do not provide the information after 90 days, the plan sponsor must report them to the Department of Labor and they must fire that service provider, according to the fee disclosure rules. By notifying the DOL, the fiduciary is covered by the exemption. If they don't notify the DOL or don't realize that it is their fiduciary responsibility to get that information from their plan providers, they could be penalized by the Department of Labor, which can claim that their contract with the service provider is a prohibited transaction.

"We're going to see a lot of DOL actions and the DOL investigating plan sponsors to make sure they are complying with the regulations," said Rosenbaum. "And we will see an uptick in participant lawsuits so now the old excuse of 'the provider is not providing it' is gone. The plan sponsor has run out of excuses."

Penalties for the company and company executives can be steep, if recent lawsuits are any indication. Small plans have been fined hundreds of thousands of dollars and large plans have been fined as much as $50 million because of improper plan expenses and because the companies didn't prudently select and monitor their plan service providers.

According to the Department of Labor, "fiduciaries that do not follow the required standards of conduct may be personally liable. If the plan lost money because of a breach of their duties, fiduciaries would have to restore those losses, or any profits received through their improper actions. For example, if an employer did not forward participants' 401(k) contributions to the plan, they would have to pay back the contributions to the plan as well as any lost earnings, and return any profits they improperly received. Fiduciaries also can be removed from their positions as fiduciaries if they fail to follow the standards of conduct."

 5. Being sued by plan participants

In 2008, the U.S. Supreme Court gave millions of workers the option to sue their employers over mismanagement of their 401(k) retirement accounts. The past couple of years have seen an uptick in plan participants suing plan sponsors over how they managed their 401(k) plans, and most industry insiders believe the number of lawsuits will only go up as plan participants find out what they've been paying in fees.