Mar 13

The Year of the Fiduciary – March 2011

On July 16, 2010, the Department of Labor issued new ERISA rules mandating that as of July 16, 2011, retirement plan service providers must adhere to new fee disclosure rules.

Full fee disclosure will make most service providers look very expensive and cause plan administrators as well as employees to question why they were never made aware of these fees.

As we previously predicted, the service provider lobbyists came out in full force. As a result of their connections, the due date for full fee disclosure is now pushed back to January 2012. While this may be just a temporary stay of execution, expect more lobbyist pressure to change, delay or even terminate this rule.

A recent analysis for a prospective client’s 401(k) plan, currently managed by a major insurance company, explains why most providers will not go down without a fight.

The following disclosure is printed on the fund fact sheet of their plan investment options: Fees that XYZ and its affiliates receive in connection with plan investments in this fund include a finder’s fee, a 12b-1 fee of 0.50%, and an annual sub-accounting and/or servicing fee of 0.15%.

Such fees, if applicable to this fund, compensate XYZ for selling the fund’s shares and servicing your retirement plan. The fund’s expense ratio includes these fees. . . Other share classes of this fund may have a lower expense ratio, but your plan’s investmentoptions do not include such shares to compensate us for distribution and plan servicing.

To paraphrase, “these funds pay us money and that is why we use them. While there may be share classes of these funds that are better for you because they have lower fees, they are not better for us.”

Even though this was clearly disclosed in print, we can tell you first hand that this plan administrator had no idea this was the case. Experience tells us this is not unusual. As an administrator, do you believe all fees should be disclosed up front or do you prefer to search for them on your own?

Why would anyone work with an entity that does not disclose and discuss all fees right from the beginning?

For your homework, find your investment fund line-up, read the fine print and then call LCM Capital Management.

Source: LCM Capital Management – our Retirement Plan and Wealth Management expert

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