408(b)(2) Ruminations from the Field

October 17, 2012

Authored by: benefitsbclp

The regulations mandating that covered service providers disclose information, particularly fee information, required that the first “explosion” of the disclosure information occur by July 1, 2012. Prior to July 1, 2012, we provided lots of information about the disclosure requirements in an effort to assist the fiduciaries in avoiding a prohibited transaction (including some prior blog posts). After July 1, 2012, we followed up and asked if there were questions or if we could assist in any fashion. We have now had three months to take a look at what happened as a result of this first round of plan level fee disclosure and discuss the effort with other advisors. Looking primarily at defined contribution plans, and particularly 401(k) plans and ESOPs, we culled some anecdotal information, and from it, there appear to be a number of pretty consistent patterns and results.


  • Diligent fiduciaries who commonly utilize the services of independent investment advisors engaged the advisors to assist them in reviewing, understanding and acting on the disclosures.
  • These fiduciaries, where advisors are retained, identified the plan’s covered service providers and confirmed that all of them provided disclosures or, where something was missing or incomplete, followed the rules to obtain the disclosures.
  • These same fiduciaries, with the assistance of advisors, reviewed the disclosures and many have taken steps to work with the advisor to determine reasonableness of fees and necessity of services. Some have done comparisons by benchmarking plan fees to assist in determining reasonableness. Some have done a thorough analysis and have memorialized their conclusions.
  • Some diligent fiduciaries have asked their advisors, or their advisors have recommended, that the plan conduct an RFP, a “ghost” RFP, or an RFI in order to do a fee and service comparison. Some are underway at this time, and some have already been finalized.
  • Even where some diligent fiduciaries may have incomplete resources, they still reviewed the disclosures and made earnest efforts to understand their plan’s fee structure.


  • Some plan fiduciaries found the disclosures difficult to review and some may have even ignored the disclosures, especially in situations where an independent investment advisor is not retained.
  • Many of these same fiduciaries have difficulty identifying which of their providers are covered service providers subject to the fee disclosure rules.
  • We have heard of only a few instances where these fiduciaries have been able to engage in a meaningful benchmarking effort.
  • Inertia seems to be a common problem in these cases, and unless the provider does something to upset the plan sponsor, these fiduciaries are not usually persuaded to change the status quo based solely on the disclosures.
  • Some of these fiduciaries contacted advisors to ask questions about the disclosures and what they meant, but it appears that only a few actually went through a process to determine reasonableness of fees even after consulting with advisors.


  • Fiduciaries generally are unable to determine on their own whether or not a fee is reasonable in the circumstances and rely heavily on the advisor, where there is one, to tell them that the fees are reasonable. Some rely on independent advisors and some rely on advice (possibly conflicted) from the firm offering the plan’s investments.
  • Although the “necessity” of a particular service may have been discussed in general terms, anecdotal evidence suggests that there is significant difficulty in drawing prudent conclusions with respect to this requirement. When considering necessity , the fiduciaries rely on the providers, often third party administrators, to “assure” them that the services being provided are necessary for the plan’s participants and beneficiaries.
  • The disclosures were often deemed to be too complex for most of the fiduciaries to understand content and import.
  • We are not aware of any fee or provider changes that have resulted from an analysis of the disclosures.
  • We are aware of only one plan sponsor who made a request of a covered service provider to make further disclosures.
  • Those plan sponsors and fiduciaries who have conducted any sort of analysis seem quite confident that their plan’s fee and service structures already in place are compliant.

What challenges have you faced with the 408(b)(2) service provider fee disclosures?  Did you find them helpful?  Please post your thoughts in a comment below.

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