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Fee Dislcosure -- Incorrect Administrative Expense Reflected


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I have a client for whom the original service agreement indicated all fees were to be paid by the employer.  The participant disclosure reflected so.  THEN, the employer changed the agreement with a portion paid by the employer and the remainder deducted from participant accounts.

The participant fee disclosure was not updated and has reflected paid by the employer for the last 4 years.  Quarterly statements are sent in which participants can see the amounts deducted attributable to fees. 

At this point, I have updated the disclosure to properly reflect a portion paid by the employer and the remainder deducted from participant accounts. 

What other action must be taken?

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First answer: get an attorney to provide a written answer to the client.  That said...we have to keep our eye on the disclosure ball: which disclosures are we thinking of?

You mention participant disclosure so i assume it's the 404a-5 notices you are thinking of.  If that regulation isn't satisfied, then the plan administrator doesn't get the advantage of the notice "safe harbor" fiduciary presumption of compliance.  (see § 2550.404a-5 (a))

In other words, the 3(16) would have to prove that it somehow otherwise helped the participants to understand all the investments.

This potential fiduciary breach cannot be corrected via VFCP.  So, go forth and sin no more and hope for no litigation: the client would have no ERISA 404(c) protection, is subject to damages for the potential fiduciary breach (although i can't imagine those), and could get a DOL sanction just because.

408(b)(2) notice is interesting.  You mention that your original service agreement envisioned no plan assets.  Thus the "manner of receipt" of the TPA comp was likely disclosed as "billed to the client"; now it is being "deducted directly from the covered plan's accounts" (see 2550.408b-2 (c)(1)(iv)(E)).

Thus unless you updated your 408(b)(2) notice, you may have to return that compensation received as undisclosed compensation.

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