Admin fees passed onto participants

[Santo Gold]

The 401(k) plan sponsor wants to pass the investment advisory account fees onto the plan participants. Investments are self-directed, but pooled, so the TPA will prepare quarterly statements for the participants. Do the fees have to be shown separately on the participant statement, or can it be "netted" against the earnings?

Thanks

[Nate X]

With all that had happened in the last decade, it is amazing that the answer to your question is NO. There is very little disclosure at all that is required to be given to participants proactively.

Generic language must be disclosed in the SPD when charges to the plan may result in the imposition of a fee to a participant.

The Plan Administrator should make information regarding fees charged to their account available to any participant who request it.

[JanetM]

In the interest of full disclosure, why not show them the fees. IMHO if you have self directed investments you must think your participants have the investment knowledge to make good choices. This would include the cost of those choices. If it were my plan I would show the fees clear and up front.

[401(k)guru]

This is a case of theory versus practice. Many plans offer a combination of pooled and mutual funds. Mutual fund fees are not shown on the statement, they are netted against the NAV but disclosed in the fund communications. When the pooled fees are shown on a statement, it appears that only the pooled funds have fees charged to the participants' accounts which can be misleading.

[Kirk Maldonado]

I thought that if you want section 404© protection, you have to disclose those fees, but I didn't research that point before making this post.

[Ron Snyder]

Elliot Spitzer believes that the fees need to be disclosed whether or not 404© applies.

Damox's Business Blog

[401(k)guru]

I agree that the fees should be disclosed whether or not it is currently legally required. The question for me is how they should be disclosed. The original poster was questioning whether the fees needed to be disclosed as expenses displayed as dollars on the participant' statements. I was suggesting that in some cases it may make sense to disclose the fees as a percentage of the fund in a description of the fund provided as a separate document. This is similar to the way mutual funds disclose their fees.

[Nate X]

Yes we’ve seemed to have drifted quite a bit from the original question:

Q: “Do the fees have to be shown separately on the participant statement, or can it be "netted" against the earnings?”

A: They can be netted against earnings.

Q: “I thought that if you want section 404© protection, you have to disclose those fees?”

A: Two items regarding fees are addressed by 404©,

1. Transaction Fees: A description of any transaction fees that will be assessed directly to a participant must be provided to participants.

2. Operating expenses: A narrative description of annual expenses should be made available to participants upon request.

Keep in mind that compliance with 404© is not required. Full compliance with 404© is difficult to achieve. Many practitioners believe that partial relief is available for those who do not fully comply.

“Elliot Spitzer believes that the fees need to be disclosed whether or not 404© applies”

Elliot Spitzer is the Attorney General of New York and does not trump the Federal law that 401(k) plans are governed by. The issues that Elliot Spitzer has addressed regarding retirement plan fees is much more complicated (i.e. deceptive practices and nondisclosure of cheaper alternatives) than simply providing participant’s disclosure. I believe that he is pushing for disclosure, but there have been no law changes in NY that require it.

So again, you can say that you should disclose fees till your blue in the face, but there's no law that requires such disclosure.