Canada: New U.S. Pension Regulations Expand Fee Disclosure Obligations – What Should Plan Fiduciaries and Service Providers Do?

Lawsuits alleging that 401(k) plan investment fees are too high and have not been monitored by plan fiduciaries or disclosed to participants have been in the spotlight for some time. Although plaintiffs have not been prevailing in this litigation, there is still the potential for such cases, or for Congress or the Securities & Exchange Commission1 to make new law affecting plan fees. However, new regulations recently finalized by the United States Department of Labor have already changed the law by imposing new disclosure obligations not just on those who administer 401(k) plans, but on a large group of plan administrators and service providers. New requirements apply to administrators of all defined contribution plans subject to the U.S. Employee Retirement Income Security Act (ERISA) in which participants direct the investment of their accounts and to fiduciaries and service providers to all pension plans subject to ERISA.

This Osler Update summarizes the new rules that have already become law and contains recommendations for best practices to help limit the risk of civil penalties and lawsuits.

Who is Affected

Service Contracts

Any fiduciaries responsible for hiring plan service providers for defined contribution or defined benefit plans, such as a 401(k) Plan Committee, will be required to get mandatory fee disclosure from the plan's service providers. If the plan doesn't designate a fiduciary responsible for hiring, the default fiduciaries will be the Company and its board of directors. Service providers include record keepers, third party administrators, trustees, brokers and investment managers and advisers. The regulations even apply on a limited basis to managers of private equity funds, including many hedge funds, that are treated as holding plan assets under Department of Labor regulations.

Participant Disclosures

A second setof regulations finalized in October 2010 requires disclosure of investment and fee information to participants and beneficiaries. These regulations cover almost all defined contribution plans subject to ERISA in which participants may decide how their accounts will be invested. Their primary impact will be on 401(k) plans, but they could also affect profit sharing or money purchase plans, tax qualified employee stock ownership plans, and tax deferred annuity plans of tax exempt organizations. The new requirements will apply regardless of whether the plan's fiduciaries have sought to protect themselves from liability for losses resulting from participant investment decisions under the safe harbor in Section 404(c) of ERISA, but expands upon those requirements. These disclosure requirements are imposed on the plan administrator, which will be the plan sponsor by default if the plan has not designated another administrator.

The New Service Contract Requirements

Covered plan service providers must now prepare to provide a large amount of new information. The requirements generally include:

  • a description of all services provided to the plan and whether they will be provided as a fiduciary or registered investment adviser;
  • all direct and indirect compensation that the service provider, any affiliate or subcontractor expects to receive;
  • if the provider is an investment fiduciary, broker or record keeper, a description of any compensation such as 12b-1 fees that will be paid among related parties;
  • a description of any compensation reasonably expected on termination of the contract, such as insurance contract surrender fees; and
  • a description of the manner in which compensation will be received, such as by billing or direct deduction from plan assets.

Special rules for record keeping services will require disclosure of typical revenue sharing arrangements. If these services will be provided in whole or in part without explicit compensation, or if compensation is subject to offset or rebates, the record keeper must give a detailed explanation of the services provided and disclose the fees that would be charged for such services if no offsets or rebates applied.

While the regulations do not technically apply where all plan fees – including indirect fees – are paid by the plan sponsor, it is difficult to believe that such plan sponsors will not require service providers to give them at least the same information as is legally required when fees are paid from plan assets.

Penalty Exposure

Plan fiduciaries, such as 401(k) or pension plan committee members, also need to know these rules, since ERISA prohibits entering into service contracts with parties in interest unless the services are necessary and the arrangement and compensation are reasonable. The regulations take the position that an arrangement is not reasonable if this mandatory information has not been obtained. Fiduciaries must request information from the service providers if it is not provided in a timely manner, and report non-compliance to the U.S. Department of Labor in order to avoid causing the plan to engage in a prohibited transaction exposing them to potential liability for losses. Service provider non-compliance will incur excise taxes.

Participant Disclosure

Participants are not required to receive the same disclosure about service provider fees as plan fiduciaries will receive (described above). Instead, all eligible employees will now have access to the following specific information:

1. On first qualifying to participate in the plan and on an annual basis thereafter:

  • For each available investment option, total operating expenses as a percentage and as a dollar amount for an assumed investment of $1000.
  • Plan related expenses, such as administrative expenses, charges for using third party investment options and legal and accounting fees.
  • Historical performance data for investment options, including one; five; and 10 year returns compared to appropriate benchmarks such as the S&P 500 or another broad-based market index appropriate for the type of investment.

The rules require information similar to that currently required to be prepared by mutual funds, such as expense ratios, to be provided by bank collective trusts and other arrangements not currently subject to these rules on the theory that uniform disclosure enables participants to more easily compare investments. There are some special and transition rules to cushion the impact of this change, as well as special rules for annuities.

A model chart to disclose this information in comparative form was also released. Although similar formats are acceptable, the model will probably become the format used by almost all plans.

2. The following will be itemized for participants on a quarterly basis:

  • Fees actually deducted from their accounts for administration.
  • Fees actually deducted from their accounts because of individual activity, such as because a loan or qualified domestic relations order was processed.
  • Fees actually deducted from their accounts for investments e.g. loads and sales charges.

While the rules do not require the details of revenue sharing arrangements to be disclosed to participants, if revenue sharing payments or 12b-1 fees reduce or are applied against administrative costs, the participants must be told that in addition to the costs set forth on the quarterly fee statement, some of the plan's administrative expenses for the preceding quarter were paid from the annual operating expenses of one or more available investment options.

Each plan must have information available on a website giving participants access to supplemental information, such as portfolio turnover, and provide a glossary of investment terms or make a glossary available through a website link. In general, changes require at least 30 days advance notice.

Penalty Exposure

No specific excise tax or monetary penalty is assessed for noncompliance with the participant disclosure rules. However, by issuing these regulations under Section 404(a) of ERISA, which defines fiduciary responsibilities, the Department of Labor has created the potential for liability for losses caused by violations.

Effective Dates

The service provider requirements apply in July 2011. The participant disclosure regulations will apply to most plans for the first time in 2012. Compliance will require coordination with vendors and substantial lead time.

Some Suggested Best Practices

  • Request fees as a percentage of plan assets as well as a dollar amount. Monitor asset-related fees on an ongoing basis to make sure they do not become disproportionate as assets increase.
  • Request and review information about revenue sharing payments, including investments that generate those payments and those that do not and the cost of services if no offsets or rebates apply. Explore alternatives to revenue sharing.
  • Place fee review on the Plan Committee's agenda on a regular basis and document the results of that review. If you select an investment or a service provider with superior performance and higher fees, document your analysis carefully in the records. A prudent process is the best defense against charges of breach of fiduciary responsibility.
  • Understand the alternatives to mutual funds that are available in the market, including bank collective trusts and insurance company separate accounts and the fee arrangements for each.
  • Consider index funds, which typically have lower fees, as well as actively-managed funds.
  • Request fee information about different classes of funds, and request a waiver of the minimum balance requirements and any loads.
  • Amend plan service agreements to spell out disclosure responsibilities and a calendar for compliance.
  • Consult outside advisers if more expertise in evaluating fees in relation to performance or selecting investment options is needed.
  • Monitor case law and legislation for new developments expanding disclosure obligations.


1. Which has proposed new general rules for 12b-1 fees.

Carol Buckmann practises in the employee benefits field advising clients on all aspects of employee benefits and retirement plans. Sandra Cohen leads the U.S. compensation and benefits team, advising Canadian and U.S. corporations on executive compensation and employee benefits matters.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.