The weather service has radar to look inside thunderstorms to reveal hidden wind patterns that may indicate potential endangerment. Unfortunately, 401(k) plan sponsors have not had the benefit of the equivalent of radar – until now.

The DOL's Rule 408(b)(2) now requires service providers to divulge those sometimes hidden fees that can pose such peril to 401(k) investors. Unfortunately, the DOL has not come up with an easy-to-read template for service providers to follow.

Instead, much to the confusion of many plan sponsors, particularly those in smaller plans, service providers have found creative ways to "technically" disclose fees without making them easy to find. Professional advisers find this disconcerting and have offered ideas on how to overcome this (see "Experts Advise 401(k) Plan Sponsors on 408(b)(2) Fee Disclosure Template").

But there is a simple way for plan sponsors to get to the heart of fees. Remember, if a service provider fails to disclose fees, the plan sponsor must fire that service provider, lest that plan sponsor be subject to penalties for non-compliance.

Also remember, the DOL has not provided a template for fee disclosure. As a result of this DOL omission, service providers have chosen their own "templates." 

Why rely on them? Why shouldn't it be the 401(k) plan sponsors who determine the appropriate template?

Think about it. Instead of fumbling through the wide variety of inconsistent forms, 401(k) plan sponsors can return any confusing "disclosures" to service providers as "non-compliant." They could then also provide their own single page disclosure using the following incredibly simple format:

• A separate form for each provider (e.g., recordkeeper, payroll processor, custodian, adviser, broker, attorney, etc…). And, yes, bundled service providers will need to complete multiple forms for each type of service they provide.
• A limited number of multiple choice questions (e.g., "Are you a fiduciary to the plan? (check one):  Yes.   No.")
• Fill in the blank for fees based on either a tiered asset-based billing schedule (typical for advisers) or transaction-based billing (typical for all others service providers).
• These fee schedules would be listed first in terms of basis points and then in dollars.
• Next actual fees paid would be list first in terms of basis points and then in dollars.

There. That's it. And it all fits on one page. It allows the 401(k) plan sponsor to easily compare one service provider to another.

Come to think of it, don't plan sponsors already ask for these comprehensive yet easy to understand templates during the RFP process? Why not do the same to existing service providers now that the DOL has made it clear they require service providers to disclose all fees.

And don't for a second allow a thundering service provider to insist they've already disclosed the fees. They may claim that the DOL has left it up to them to determine how to comply with disclosure.

That's true. But the DOL has also put the burden for monitoring this compliance to the 401(k) plan sponsor and, as a result, left the burden of the monitoring on the plan sponsor, not the service provider.

In fact, the DOL specifically states the plan sponsor must report to the service provider if it feels fees are not properly disclosed. In plain English, that means if the plan sponsor doesn't understand how the fees are disclosed, a valid argument can be made that no disclosure has occurred.

It's time for 401(k) plan sponsors to take a stand. They're on the hook for fee disclosure just as much as service providers are. After all, they own their plan, not the service provider.

Should they brave the natural forces of defensive service providers and shift the burden of making disclosure easy and understandable back on them? They now have the backing of the DOL to do so.