Members of the defined contribution industry have had three months to try to digest a Department of Labor proposed rule on fee disclosure, and many of them are choking on it.
The object of their distress is a recommendation that service providers create a fee-disclosure guide for DC plan clients. The guide would identify the pages and/or sections in plan documents “that enables the responsible plan fiduciary to quickly and easily find the specified information,” a summary of the DOL proposal said.
Some critics say this is a one-size-fits-all proposal that will mean extra cost and administrative work — but not extra value. Others criticize the Labor Department's rule-making process, arguing the DOL lacks sufficient data to justify the proposed regulation, which amends fee-disclosure rules that took effect in mid-2012 under Section 408(b)(2) of the Employee Retirement Security Act.
“We are concerned that the proposal is premature,” said Michael Hadley, a Washington-based partner at law firm Davis & Harman LLP, who represents the SPARK Institute, a trade group whose members include record keepers, mutual fund companies, brokerage firms and consultants.
SPARK wants the DOL to withdraw its proposal, maintaining the department has underestimated the proposed rule's cost to service providers and, ultimately, DC plans. SPARK says the guide would yield less information than the fee-disclosure summaries now offered by many providers. “The department needs to take another look to see if this is necessary,” said Mr. Hadley, whose organization argues that the proposed guide would discourage service providers from offering summaries. “We believe the cost outweighs the benefits.”
The Plan Sponsor Council of America did a quick survey of its members, getting 50 responses that were “all over the board as to whether this (proposed rule) is necessary,” said Rosemary Becchi, a Washington-based partner at law firm McGuireWoods LLP, which represents the PSCA.
Acknowledging that the sample size is small, Ms. Becchi said the diversity of responses shows “there is no clear consensus as to what is needed, if anything.”
Existing rules allow some flexibility in presenting information, but the DOL proposal will reduce flexibility without improving simplicity, said Roberta Ufford, a principal at Washington-based Groom Law Group. “A lot of clients put this information into their service agreements,” Ms. Ufford said. “Why wouldn't this be sufficient?”