Advisers worked hard for many months (or longer) to prepare defined contribution plan retirement plan sponsors and their participants for the onslaught of expanded fee disclosures they would receive last year under the Department of Labor's years-in-the-making 408(b)(2) and 404(a)(5) regulations.

With lessons from that effort now becoming apparent, advisers are looking ahead to assist clients with broader challenges that have taken on greater urgency in the wake of the focus on plan fees. Those include tasks that advisers have always sought to help clients with, such as ensuring that:

* Plan sponsors and participants are receiving value for the services they are purchasing.

* Plan governance satisfies statutory and fiduciary standards.

* Operations are running smoothly.

* The plan is achieving its strategic objectives.

The premise behind the disclosure regulations - that plan sponsors and participants, supplied with clearer and more detailed fee information, would read it carefully and make decisions based on those disclosures - may have been somewhat optimistic in the short run.


Few questions asked

"As we expected, we got very few questions from participants," says Steven Kaye, president of AEPG Wealth Strategies.

An October 2012 survey by the Plan Sponsor Council of America suggests Kaye's experience was typical: An average of 1.4% of participants posed questions based on the disclosure documents. Among employers with 1-99 participants, 73% received no such questions from participants.

Also, 95% of surveyed plan sponsors reported "no change in participant behavior," such as switching plan investments, stemming from the disclosures, according to the PSCA.

Equally significant, and perhaps predictable, small plan sponsors have not been transformed overnight into highly analytical, detail-oriented consumers of retirement plan cost data. Most employers whose responsibilities aren't limited to retirement plan oversight "do not have the time or inclination to place a high priority on understanding these plan details," according to Jerry Huggins, a consultant with Innovest Portfolio Solutions.

The most common questions from employers received by Jamie Greenleaf, general partner of retirement plan consultants Cafaro Greenleaf, have revolved around the nuts and bolts of ensuring Department of Labor-compliant dissemination of disclosure statements.

This subdued response to fee disclosures may be due to the limited scope of the information the statements contain. "The document only goes so far" in providing truly useful information, notes Harris Nydick, a founding partner of CFS Investment Advisory Services. Questions not answered by the disclosures, according to Nydick, include, "How do you know whether you got the right price," and, "What are other companies my size paying?"



Focus on value versus cost

Beyond those basics, the disclosures also do not address whether employers and participants are getting value for services received, nor whether they are building the appropriate features into their plans, based on their goals, says Andrew Miller, director of retirement and investor services for The Principal Financial Group.

On a practical level, Principal has been responding to initial feedback on its disclosure statements by trying to pare data down to the bare essentials to make it more easily digestible, Miller says.

Plan sponsors' recognition of the fee disclosures' limitations may be helping advisers' ongoing efforts to guide them with larger information needs. "Advisers should make sure their plan sponsors realize that they are very much on the hook to benchmark the fees," suggests Lori Lucas, head of Callan Associates' defined contribution consulting practice.

In recent years, large employers have faced lawsuits accusing them of allowing participants to incur fees deemed to be excessive - and responded by taking the matter very seriously.

But, expanded fee disclosure today could increase the legal exposure for smaller plan sponsors that don't focus on the issue, to the extent that it might be easier to demonstrate negligence by small plan sponsors that fail to act upon the more detailed information they now receive.


Recordkeeping fees dropping

However, many plan providers, particularly recordkeepers, have acted preemptively to cut their fees. The latest (2012) annual defined contribution plan fee survey by NEPC, LLC, found total plan costs to be lower than they have been in any of the firm's six previous surveys. "Recordkeeping fees have fallen 22% since 2006, with half of the decline occurring in the last 15 months alone," according to the firm.

Some additional survey highlights:

* Vendor searches in the prior year "resulted in savings, on average, of 40% on recordkeeping fees."

* The average median recordkeeping fee was $92 per participant in 2012, versus $103 the prior year.

* The annual weighted average investment account expense ratio was 52 basis points, down only one basis point from the prior survey.

The fact that recordkeeping fees dropped far more dramatically than the overall plan costs (a 2% decline) "may be explained, in part, by recordkeepers shifting fees to one part of the business from another," NEPC states.

The survey thus suggests advisers still have their work cut out for them guiding clients to competitively priced services.

One path toward that end is emphasizing index-based funds and ETFs in the plan's investment lineup, an approach taken by AEPB's Kaye. In addition to lowering asset management fees, such investments, by their nature, eliminate tracking error risk, Kaye says.

Still, the overriding issue for sponsors may be value - including value received for more costly actively managed funds. "We would not advise ditching an actively managed fund" if its cost structure (and performance) were competitive on an apples-to-apples comparison, says Nydick. He also notes that the cost of similar index funds can vary significantly.

Whatever decisions plan sponsors ultimately make in response to fee disclosures, advisers should keep the focus on proper governance by making sure those decisions are made in accordance with a formal policy framework, and that they document the rationale for their decisions, says Lucas.

Stolz is a Maryland-based freelance writer.

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