Nonprofit Insider

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June 2012 Vol. 3 No. 3

U H Y LLP C e r t i f i e d P u b l i c A c c o u n t a n t s
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Plan Sponsors, Are you Ready for the New Regulations?

By Don Hughes, Tax Manager & Barbara Hale, Principal

arlier this year, the Department of Labor (DOL) put into motion two new DOL Regulations regarding fee disclosure and fee transparency that will dramatically affect almost all employers that sponsor retirement plans (Plan Sponsors) subject to ERISA. First, DOL Regulation Section 2550.408b-2 (effective July 1, 2012) is intended to ensure that Plan Sponsors know and understand all of the fees being charged by those entities that provide record-keeping and investment management services (Service Providers) to the plan. Second, DOL Regulation Section 2550.404a-5 (with an initial compliance date of August 30, 2012) is intended to ensure that the participants in plans which permit participant-direction of plan investments

are provided with similar information including all of the costs and expenses charged against their plan accounts. To comply with these new requirements, the Plan Sponsor, as well as any other plan fiduciary with authority to contract with a Service Provider (which may include the plans Administrative Committee, the Plan Sponsors officers, and any individuals serving as plan trustees), should have a process to review the data received from the Service Providers to determine if the expenses are fair and reasonable. The required analysis may require comparing the fees being paid with benchmarks of fees paid by similar plans for similar services. If it is determined that the expenses are not reasonable, the Plan Sponsor must take all prudent steps to negotiate a lower fee, seek rebates of excessive fees, or even replace the Service Provider to comply with the new rules. In general, a Service Providers failure to comply with these new requirements will automatically result in a prohibited transaction between the plan and the Service

Provider. A prohibited transaction must be disclosed on the plans Form 5500, and, for large plans (those with 100 or more participants), must be reported in the plans audited financial statements. As indicated above, the Plan Sponsor is charged with the responsibility of analyzing the disclosed information to determine if the fees being charged are fair and reasonable. The failure to do so could result in the Plan Sponsor being treated as breaching its fiduciary duty to the plans participants. The importance of this fiduciary duty to properly analyze the information supplied by the Service Providers cannot be understated, especially in light of a recent class action case styled Tussey v. ABB, Inc. In that case, the court ruled that the Plan Sponsor pay $35.2 million to the plans participants for failing to prudently monitor the record-keeping and revenue-sharing payments made to Fidelity, as the plans recordkeeper and provider of investment alternatives under the plan.

Action Steps for Plan Sponsors

To ensure compliance with these new DOL Regulations, the following steps should be immediately taken by Plan Sponsors:
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For more information, please contact Jennine Anderson at janderson@uhy-us.com

UHY LLP brings specialists in nonprofit solutions in accounting and tax.

June 2012 Vol. 3 No. 3

Plan Sponsors, Are you Ready for the New Regulations?

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The Plan Sponsor should designate an individual or committee to identify all of the plans Service Providers as soon as possible and diligently coordinate with them regarding the expense information required by the July 1, 2012, deadline to comply with the new Regulations; If the information is not received by July 1, 2012, the Plan Sponsor must send a written notice as soon as possible (but no later than 90 days) to the Service Provider requesting the information and indicating that the Plan Sponsor is required to report this failure to provide the information as a prohibited transaction on its Form 5500; The Plan Sponsor must follow and document a well-reasoned process to review the disclosed data and determine whether the services provided and the fees being paid are fair and reasonable and do not present a conflict of interest with the Service Provider; In order to determine the reasonableness of the disclosed fees, the Plan Sponsor needs to benchmark the fees with those paid by similar plans for similar services which may require the assistance of a consultant who is able to review the performance of the investment alternatives available under the plan as well as the fees charged to manage those investment alterna-

tives and provide record-keeping and other administrative services; By August 30, 2012 (for calendar year plans), the Plan Sponsor should provide to the participants in their participant-directed plans all of this expense data along with the investment performance information and may use their Service Providers to assist with this communication; For each subsequent quarter, the Plan Sponsor must provide to each participant in their participant-directed plans a statement that covers only the plans administrative expenses actually charged to the participants plan account for services rendered during the quarter by the Service Provider. These statements are due within 45 days of the last day of the quarter with the first report due to participants by November 14, 2012 (for calendar year plans); If the Plan Sponsor determines that the disclosed fees are not

reasonable, then the Plan Sponsor must take all prudent steps to either negotiate a lower fee, seek a rebate of any excessive fees, and/or require additional services be performed by the Service Provider; and If the Plan Sponsor does not receive the required information and/or the Service Provider cannot comply with the requests to make their fees reasonable, then the Plan Sponsor must notify the DOL and, as soon as reasonably possible, terminate the contract with the Service Provider and find another Service Provider that can comply with the requirements under the new Regulations. The members of the UHY Compensation & Employee Benefits Tax Service Team are prepared to consult with you to ensure compliance with the requirements of these new DOL Regulations. Contact Jennine Anderson at 410-423-4803 or janderson@uhy-us.com for further information.

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