Bloggers and financial planning professionals are talking about the DOL’s upcoming requirement to disclose details about administrative fees for 401(k) plans. July 1 is the date that sets all of the wheels in motion regarding fee disclosures. Right now, you can plan ahead and be ready, and make any adjustments you feel are needed for your plan. The DOL has a worksheet that takes you through a series of steps to determine the fees you pay. Using this worksheet will give you clarity about your fees and ample time to prepare how to address the fees and present them to current employees and other plan participants. Here are the key dates to remember:

July 1 – Plan administrators and mutual funds must disclose details of administrative fees (direct and indirect compensation) in 401(k) plans.

August 30 – Plan administrators must furnish plan participants with a copy of the fees by this date.

November 14 – Date by which fees and expenses must appear on the quarterly statement for fees incurred from July to September, 2012.

With the information you uncover about your fees, you may want to consider benchmarking your plan against other plans with similar number of participants and assets. Having benchmark information will also help your justification of fees with employees. Remember that many employees are unaware of fees and will require justification because the fees affect their ultimate savings.

This year, when you make New Year’s resolutions, be sure to have one about checking on the fees you pay to administer your plan. Even a company like Walmart, with its extensive legal resources, recently agreed to pay $13.5 million dollars along with Merrill Lynch for a class action settlement. Without admitting any fiduciary wrongdoing, they agreed to eliminate funds from their plans that carried high fees. A few reminders:

1. Know what fees you pay and be prepared to justify them to your plan participants as well as the DOL.
2. Be sure that record-keeping fees are documented separately from investment management fees.
3. Diversify your plan portfolio, offering choices to plan participants.
4. Communicate all changes to your plan participants and employees – clearly and promptly to avoid any misunderstandings.

Your plan auditor is a good source of information about ways to keep your plan in top fiduciary shape. Another good resource is the AICPA’s Accounting and Auditing Resource Centers.

The scrutiny on employee benefit plan administrators is intense, and plan management will continue to be an extremely important topic as baby boomers retire. A recent case involving plan participants for Kraft Foods Global Inc. creates a mandate for plan fiduciaries:

Plan managers must address the concerns of participants promptly and document all decisions to demonstrate that the plan is operating in the best interests of the participants.

While such a message seems obvious, day-to-day operations can interfere with fulfilling this duty. In the case of Kraft Foods, one of the investment selections was a company stock fund. The fund was ‘unitized’ with plan participants purchasing a ‘unit’ of the fund instead of a share of stock. The fund included cash, which did not increase in value at the same rate as the company shares of stock.  This situation is called ‘investment drag.’ And, while it may be appealing that specific transaction fees are eliminated, there are costs for managing the fund that are taken from the fund in general, and not from individual transactions. Because the fees associated are equally split regardless of number of units traded, a transactional drag’ occurs. In essence, plan participants pay the same fee whether they make one transaction or 10.

In hindsight, plan administrators were expected to address the ‘investment drag’ and ‘transactional drag.’ Because changes to the plan were discussed, but not implemented, the 7^th U.S. Circuit Court of Appeals found the administrators to be acting unreasonably in light of ERISA. Lawsuit situations will not just happen to Fortune 500 companies. All plan fiduciaries need to be vigilantly proactive.

When you think about deadlines you need to meet, the initials IRS and DOL probably come to mind. However, a recent court case provides a timely reminder that plan sponsors have internal deadlines to meet with employees. Essentially, when plans are amended, you need to respond within 30 days to meet an employee’s request for an updated SPD or SMM. Perceived non-compliance of these deadlines can result in fines of up to $110/day.

In the case Kasireddy v. Bank of America Corp. Benefits Committee, 2010 WL 4168512 (N.D. Ill. Oct. 13, 2010), a medical plan participant sued her plan’s benefit committee for failure to provide a copy of the plan’s SPD in response to her written requests. The company provided some information within the 30-day timeframe, although the information was not fully up-to-date. The company was going by the 210-day rule as the timeframe available for notification of updated information. The court disagreed with the company and voted in favor the plan participant’s lawsuit, imposing the strictest penalty possible.

As a plan administrator, it is essential that you keep all materials current regarding the plans you offer. That way, you can confidently respond to employee requests in a timely manner with correct information.

The 2008-2009 financial crisis was a stark reminder of the mortality of our retirement plans. Clearly, investment/overall market performance and employee contribution levels are the greatest factors affecting plan value. But plan sponsors can also put options in place that affect value. From an auditor’s point of view, here are ways you can benefit your plan: Read the rest of this entry »

If your benefit plan was audited, then you likely spent hours going through files pulling basic information for your auditors. You may have pulled files from storage or from different offices. Worse, you may have educated your plan auditors on the basics of the plan when they had a plan document and summary plan description to read, which you gave them. You may have even found yourself researching payroll records for various employees for the entire fiscal year to determine why their employee contributions are different than the ones calculated by the auditors. Read the rest of this entry »

You have a fiduciary responsibility to ensure that plan fees are reasonable as a plan sponsor. The best practice for meeting this fiduciary obligation is to go shopping. Ask a variety of potential vendors the same questions about what they charge for the services they provide. Obtain bids from the most promising vendors and chose your favorite.

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