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New 401(k) Fee Disclosure Rules Unveiled

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By Tanya Roth, Esq. on July 19, 2010 7:03 AM

New rules from the U.S. Department of Labor were announced on Thursday, July 15. These long anticipated regulations will affect the way advisors and brokers communicate to the sponsors of 401(k)s. Specifically, the new DOL rules, called 408(b)(2) rules, due to take effect in July 2011, require detailed statements about fees, services and some new requirements regarding possible conflict of interests. This is good news for sponsors of employee 401(k) plans.

Those that are running a smaller business, but still provide their employees with a 401(k), must always watch the company's expenses. The new regulations may help them do just that. InvestmentNews writes that the new fee disclosure rules will allow plan sponsors to make a more accurate assessment when comparing the fees of competing plan providers.

According to Reuters, advisors to sponsors will have to provide a detailed account of the fees they will charge to manage the plans. In addition, they will have to detail how they will be paid, billing the plan's sponsor directly, or through revenue-sharing agreements.

Not only will plan sponsors benefit, but the concrete requirements will help advisors understand just what will be expected. Reuters reports that the American Society of Pension Professionals and Actuaries supports the new rules. "Providers now have clear guidance on what disclosures are required and plan sponsors will have the information they need to make informed choices about their retirement plans," said Brian Graff, chief executive of ASPPA, in a statement.

The compensation disclosure rules can also reveal potential conflicts of interest on the part of advisors. Plan advisers and brokers will have to detail any additional compensation they receive, such as a commission for selling a particular investment. According to InvestmentNews, the new rules also set out which categories of service providers must comply with the disclosure requirements. These include fiduciaries, investment advisers and record keepers or brokers who make investment alternatives available to a plan. This, along with a recent court case "formalizes that advisers must acknowledge whether they're fiduciaries of the plan."

The requirements of duty and disclosure enforced by the new rules may well lead to a more predictable relationship between employers and the advisors they look to keep their 401(k)s on track.

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