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New rules require disclosures about fees under US tax-qualified
retirement plans by both service providers to plans and plan
sponsors.
US tax-qualified plans may only pay "reasonable
compensation" for services. If the plan pays more than
reasonable compensation, there may be a "prohibited
transaction" creating fiduciary liability and resulting in
excise taxes. Accordingly, plans must be able to determine what
services they are purchasing and the fees being paid for those
services. However, many plans receive service under
"bundled" arrangements, in which services and fees are
not specified. For example, a mutual fund company and its
affiliates may provide investment services, recordkeeping and
trustee services for one fee.
Effective July 1, 2012, most service providers will be required
to report to plan sponsors the details of the services provided,
how they are compensated and whether there are any potential
conflicts of interest. Both direct and indirect compensation (where
a party other than the plan or the plan sponsor pays the service
provider) must be disclosed. In the case of indirect compensation,
the ultimate payer for the services must be listed. Plan sponsors
must, then, consider all of this information in their selection and
subsequent retention of service providers.
Plan sponsors are similarly required to disclose to plan
participants the types and amounts of fees that are charged, as
well as information about making investment elections. This
includes certain information required to be disclosed annually (no
later than August 30, 2012 for calendar year plans). Other
information must be disclosed quarterly, starting with the third
quarter of 2012. Plan sponsors should coordinate with their service
providers to ensure that these disclosure rules and deadlines are
met.
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.
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