The Department of Labor's (DOL) recently proposed rule on 401(k) plan fee disclosure is being hailed by industry officials as a step in the right direction because it provides straightforward rules for disclosure of defined contribution plan fee information that participants need to invest their retirement dollars appropriately.
However, industry officials say the rule's proposed effective date–the comment period expires September 8 and the effective date is January 2009–is unrealistic, and will be costly to implement in such a short period of time. "The cost of complying [with the proposed rule] by the beginning of next year is going to be outrageous," says Bruce Ashton, a partner with Reish Luftman Reicher & Cohen in Los Angeles, which specializes in employee benefits and ERISA. Jan Jacobson, senior counsel, retirement policy, for the American Benefits Council (ABC) in Washington, says the ABC plans to write a comment letter to Labor asking to delay the effective date until 2010, "or have some sort of reasonable transition period."
DOL's proposed rule requires "the disclosure of certain plan and investment-related information, including fee and expense information, to participants and beneficiaries in participant-directed individual account plans (e.g., 401(k) plans)." The disclosure efforts, Ashton says, are going to fall on recordkeepers, not plan sponsors. "The sponsor is going to have to make sure it happens," but Ashton points out that it will be the recordkeepers who will need to "capture the data and then reprogram to be able to deliver the data," he says, which "is going to be a significant effort." The three-month turnaround time means "the cost is going to be quite significant, much more significant than the department realizes."
Ashton sees other trouble spots in the proposed rule. "The proposal assumes that plans are using mutual funds as the investment vehicle," he says. For "plans that use alternative investments–such as ETFs or collective trusts or other vehicles–just capturing the data is going to be difficult."
