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No More Excuses –Reacting to Unreasonable Disclosures
By Louis S. Harvey, CEO Dalbar, Inc. on Jul 24, 2012


 

Up until July 1, 2012, responsible plan fiduciaries (Plan Sponsors) escaped penalties for not evaluating plan fees. They could claim that service providers did not provide the information that would allow them to protect participants’ assets from excessive fees. The argument was simply that there was no regulation that required service providers to provide such disclosures.
The July 1 amendment to ERISA 408(b)(2) took that excuse away. And overnight this turned failing to perform a prudent evaluation of fees into a prohibited transaction. .
Plan sponsors now have the regulatory muscle to perform the required evaluations through the 408(b)(2) amendment. First, service providers are required to make some minimum prescribed disclosures, but,- even more important -, plan sponsors can now demand what they need to conduct the evaluation, supported by the power of the Federal Government.
If a plan sponsor receives an unreasonable disclosure (one that cannot be used for a prudent evaluation), it is now up to the plan sponsor to demand a workable disclosure and to file a report if a useful disclosure is not forthcoming in 90 days.
Yes, it is the plan sponsor that is on the hook now if service providers deliver unusable disclosures.
The excuse is gone.
I can hear the voice of a DoL examiner, asking a distressed plan sponsor, “and why is it exactly, that you didn’t bother to file a report to get an exemption?”
While strict enforcement of the evaluation is not expected for several months, it may be too late to take the necessary steps when the enforcement does begin.
The answer today is simple. Plan sponsors should take a look at fee disclosures right now and if they are unclear, immediately demand the information needed to perform a proper evaluation. Dalbar has a template that can be used to request the information plan sponsors will need. Download it here.
If the service provider fails to provide the information in 90 days, plan sponsors have 30 more days to file a report that lifts the plan sponsors’ burden. The DoL has announced a Website (www.dol.gov/ebsa/regs/feedisclosurefailurenotice.html) that will be available to plan sponsors to file these reports. In the meanwhile, the reports can be e-mailed to OE-DelinquentSPnotice@dol.gov.
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New Comment
Created by Marc Schoen in 8/6/2012 3:08:53 PM
Places a burden on the advisors as well since now a plan sponsor is required to fire his/her golfing buddy.

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Louis S. Harvey
President & CEO
 

 

 

Founder and leader of Dalbar, Lou Harvey is relentless in the search for the forces that are shaping the world of financial services today, tomorrow and for years hence. Using Dalbar’s research capabilities, Lou Harvey seeks insights from inside and outside the industry to understand and anticipate changes in customers’ needs and the ways products are distributed.

 

Read more about Lou on www.dalbar.com

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