Special Guest Author Victor Hicks II, CFP: 401(k) Fee Regs Burden Small-Mid Size Business

Victor Hicks IIVictor Hicks II, CFP®, AIF® is a 401(k) Advisor and owner of Lumin Financial LLC, an independent Registered Investment Adviser that specializes in 401(k) advisory services in Southfield, Michigan. He can be reached at (248) 936-9480, or [email protected].

If you’re a 401(k) plan trustee, you’re likely bewildered by the flurry of compliance-driven emails and letters provided by your 401(k) service providers.  I can say this, because my firm spent a good part of 2013, helping clients interpret the fee disclosure documents prepared by their record-keeper or fund company.

The fee disclosure rules [ERISA Section 408(b)(2)], adopted in July 2012, require 401(k) service providers to deliver written notice of their fee arrangements to their clients…the plan trustees.  The actual purpose of the new rule is to equip 401(k) trustees with the necessary information, to determine whether or not the fees (charged to their 401(k) participants), are “reasonable.”  You might recall that prior to 2012, 401(k) investment fees were hidden; and thus, considered “free.”

I admit that after watching the last twelve months of ERISA’s legislative process, I’m fairly comfortable with the final format and content of the documents received by our clients.  But the documents (by themselves) are not what’s bewildered small-mid businesses…it’s the part where the plan trustees have asked…“So, what do I do now?”  In other words, what they’re really asking is, “how do I take all of this information, and determine what is reasonable?”

I have a friend in the benefits department of a publicly-traded firm, which clearly has the bandwidth (staffing, resources, etc.) to take on this additional responsibility, but the small-mid firms certainly do not.

Small-mid sized employers, usually lack the staff (or expertise) to conduct their own “testing or benchmarking” of 401(k) plan fees.  So, I imagine that the next significant step for plan trustees will be to lean on their trusted advisors for support in this area, and of course, begin asking the tougher questions.  In the meantime, if you’re eager to learn more, enjoy reading the Department of Labor’s publication, Meeting Your Fiduciary Responsibilities.

Information presented is for educational purposes only, and is not a solicitation to trade securities. Consult with a qualified financial, tax or legal professional, before implementing any strategy discussed in this publication.