DC service providers getting jump on DOL fee rules

Impatient waiting for the final word from the Department of Labor, some service providers are sending fee-disclosure information to clients in advance of the DOL's issuing formal regulations.

Providers say they are acting now because they want their clients to get a head start on understanding what they anticipate will be the new requirements under Section 408(b)(2) of the Employee Retirement Income Security Act. They say they're willing to risk revising their disclosure documents if the information required by the Labor Department differs from what they are providing, either in substance or in presentation.

“It's important to get out in front to educate sponsors, advisers and intermediaries,” said Charles Nelson, president of Great-West Retirement Services, Greenwood Village, Colo., whose firm began sending fee-disclosure documents in August to advisers and intermediaries. “You cannot just throw a document at them. You have to educate them.”

Some providers say their existing fee-disclosure documents offer more information than they expect will be required by the new DOL rules, adding that their firms probably won't have to make significant adjustments in their fee disclosure.

“We have been surprised at the level of discomfort in the industry,” said Lynda Abend, managing director of product development for New York Life Retirement Plan Services, Westwood, Mass. “Our clients know what they're paying for.”

The providers' responses mark the latest chapter in a long-running saga involving changes to Section 408(b)(2). The DOL issued proposed regulations in late 2007, but they were met by heavy criticism from many who provide retirement investment advice, management or services.

The DOL issued a new set of proposals in July 2010, calling it an “interim final” regulation and asking industry members for comments (Pensions & Investments, Oct. 1, 2010).

Although the DOL wanted the regulations to take effect in mid-July 2011, it extended the implementation when it became clear that it needed more time to complete what retirement industry members half-jokingly call the “final-final” regulations. The DOL now says providers must implement new fee-disclosure regulations in April 2012.

The Labor Department sent the proposed “final-final” regulations to the Office of Management and Budget for review on July 22. The OMB has up to 90 days to analyze them. “Upon the completion of OMB's review, we plan to publish the regulation as soon as possible,” said Michael Trupo, a DOL spokesman.

Assuming the OMB signs off without recommending changes that would cause further delays, providers will have about six months to educate sponsors and meet the requirements.

“The time line (for implementation) is tight,” said Mr. Nelson, explaining why his company decided to send information before the DOL acted. “We have to train employees and clients.”

Service providers sending out information early to clients are using the DOL's interim final regulations for guidance. Some providers say their fee-disclosure information for clients either matches or exceeds what's cited in the interim final regulations.

Great-West unveiled a 12-page fee-disclosure document template in August that offers more information than is contained in the DOL's interim final regulations, Mr. Nelson said. For example, Great-West's disclosure statement provides fee information in both dollars and percentages even though the DOL doesn't require both, he said. The DOL doesn't require providers to disclose fixed general account fees, but Great-West is including it. “We think it's important,” he said.

Mr. Nelson said the Great-West disclosure document is the product of research that included focus group meeting with advisers, third-party administrators and plan executives.

The Principal Financial Group, Des Moines, Iowa, started conducting focus groups last fall with advisers and, later, with some sponsors to test fee-disclosure presentations, said Joni Tibbetts, vice president for retirement and investor services.

“We found that The Principal was already disclosing most of the information that was included in the (DOL's) interim final regulations,” she said. “We wanted to give our fee-disclosure information a fresh look and make it easier to read. What we heard from the focus groups was "keep it simple.'”

In addition to seeking information from focus groups, the firm conducted webcasts for clients describing the fee-disclosure information.

The firm also unveiled a web page for new clients that includes Section 408(b)(2) information in one place — investments, fees, services — that isn't required by the DOL's interim final regulations, Ms. Tibbetts said.

This web page will be launched Nov. 1 for existing clients.

The fee-disclosure web page includes a summary statement of fees that is not required under current DOL regulations. However, retirement industry members expect the final DOL regulations will require a summary statement.

“We've been ready for this,” Ms. Tibbetts said. “The information is not new to us. If the summary is required in a different format, we can adapt to that.”

New York Life Retirement Services has been providing more fee-disclosure information than is required by current DOL rules for the past six or seven years, Ms. Abend said.

For example, the DOL now requires providers to give fee-disclosure details to clients when they sign a contract and when fees change. New York Life Retirement Services takes the extra step of disclosing the information annually and disclosing “an annual calculation of the revenue that we have earned off the services that have been provided,” Ms. Abend said.

Although the DOL currently doesn't require a summary statement of fees, New York Life Retirement has been providing a summary statement for several years.“

The information is the same that is discussed in the (DOL's) interim final regulations, but our format is different,” she said. “Once the regulations are finalized, we'll update the summary. We view this as a non-event.”

Clients of Vanguard Group Inc., Malvern, Pa., won't notice many changes in fee disclosure after the DOL's final regulations are approved, said Barbara Fallon-Walsh, principal and head of Vanguard's full-service retirement plans business.

Clients receive an “all-in fee” report every year, and Vanguard also offers a summary statement that includes disclosure of Vanguard's revenue from the sponsor, outside fund companies' payments to Vanguard and per-participant fees. “We've been offering this annually to sponsors for over a decade,” Ms. Fallon-Walsh said.

Vanguard is in the process of revising its summary statement under the assumption that the DOL will require the disclosure of a separate number for record-keeping services; the company already has been providing such information on a pilot-program basis to some clients. “We'll have to adjust our systems to deal with the record-keeping figure,” she said. “If you've been a Vanguard client, I don't think the (DOL fee disclosure rule) changes will feel as dramatic as it might for others.”

T. Rowe Price, Baltimore, created a template for the anticipated DOL regulations, but it is waiting for the rules to be finalized, said Howard Heller, manager, legislative and regulatory strategy for T. Rowe Price Retirement Plan Services Inc. However, the firm shared a sample with clients during an annual conference in the spring, and it has been providing updates as part of its monthly discussions with sponsors about compliance and regulatory issues, he said.

Mr. Heller added that T. Rowe Price has been providing more than the minimum DOL requirement for “a number of years.”