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Regardless of your politics, it is likely that the ongoing debate regarding the debt ceiling has prompted two basic emotions: fear and loathing.  These emotions are entirely justified as how our Congress acts, or fails to act, in the coming days may potentially harm each of us.

These same emotions have been brewing for years by the retirement industry.  In the case of the industry it’s not Congress, but rather its regulatory arm, the Department of Labor (DOL), that is the focal point.  Specifically, the retirement industry is not at all that happy about the pending changes caused by the new fee disclosure regulations.

These strong feelings began when the industry was put on notice that the 2009 5500 filing would actually need to disclose all of the typically hidden/behind-the-scenes revenues that are generated by 401(k) and other retirement plans.  From that point forward the industry has consistently sought to delay implementation of the new rules.

I suspect that that the devil in the debt ceiling debate will certainly be hidden amongst the details.  In the case of fee disclosure, I believe the industry could have, and should have, stopped complaining long ago as the way to circumnavigate the new rules was spelled out long ago in the Q&A provided by the DOL.

The answer to question 29 is the reason that the much-anticipated sea change in soft-dollar fee reporting via the 5500 never occurred:

Q29: Can a recordkeeper satisfy the alternative reporting option for eligible indirect compensation by furnishing the plan administrator with prospectuses, brokerage fee schedules, the SEC Form ADV, or other already available documents prepared and provided to the administrator for separate purposes, or must it create its own written disclosure document?

As long as the person who is identified on the Schedule C as providing the required disclosures for the eligible reporting option advises the plan administrator that disclosures in those documents are intended to satisfy the alternative reporting option in addition to serving the other purposes for which the documents were generated, provision of existing documents will satisfy the alternative reporting option if a reasonable plan administrator can readily determine from the documents: (a) the existence of the indirect compensation; (b) the services provided for the indirect compensation or the purpose for the payment of the indirect compensation; (c) the amount (or estimate) of the compensation or a description of the formula used to calculate or determine the compensation; and (d) the identity of the party or parties paying and receiving the compensation. Furnishing the plan administrator with a separate document that identifies the other already provided documents that contain the required information also would satisfy the eligible indirect compensation disclosure requirement provided the separate document includes references to pages or sections of the document that contain the required information.

Yes.  The answer is that the new version of the 5500 doesn’t actually have to have the details regarding the indirect fees – which is why most 5500s for the 2009 plan year are blissfully silent on that front.  All hand-wringing aside, the biggest obstacle created by the new 5500 regulations was the electronic filing method, not the disclosure of indirect fees.  Please attempt to find a detailed reporting of soft dollar/indirect fees for your plan via the DOL’s 5500 search tool (good luck).

The current bogeyman is the oft-delayed covered service provider (CSP) disclosure and the related participant fee disclosure.  It’s worth noting the DOL’s guidance to the CSP disclosure:

Q-2: Must the CSP include all of the required regulatory disclosures in a single writing?

No. The regulations do not require the CSP to make the required disclosures in a single document. The CSP may use multiple documents from separate sources, provided the documents collectively contain all of the required information.

Q-3: Do the regulations provide a particular format or a model disclosure statement?

No. The DOL considered, but specifically declined to adopt, a particular format or a model disclosure statement. The DOL instead opted to leave the specifics of the manner of disclosure to the plan and the service provider. The DOL has requested comments regarding the possibility of requiring a summary disclosure statement that would provide key information and references to more detailed disclosures.

The same, enormous loophole put in place for 5500 reporting is alive and well for the CSP disclosure.  Service providers can supply multiple documents in various formats and claim compliance.  Plan sponsors will be tasked to assemble and identify the salient components.  It does sound like something Hunter S. Thompson would enjoy expanding upon.

There is some valid concern over the participant level disclosure as it is the one piece where the DOL provided an actual template for that disclosure.  That said, the DOL’s template isn’t required and significant loopholes remain in what is actually reported (gross vs. net performance, etc.).  There is also the simple fact that a large swath of plans in the governmental and not-for-profit arena are exempt from these disclosure rules.   The continued delays in the implementation of these rules also give additional time to potentially water-down the disclosures. 

There is indeed much to fear and loathe about our duly-elected representatives.  The retirement industry, however, can probably lighten up their rhetoric regarding the onus of disclosing fees.

Marshall J. Cobb, CRSP, is president and founder of Cobb Retirement Solutions, LLC., an independent, fee-only firm offering qualified plan analysis and oversight exclusively to corporations and organizations. Cobb’s first-hand knowledge as a veteran representative of retirement plan vendors beginning in 1990 gives him a unique perspective as he advises his clients.  Cobb runs his office -- based in Houston, Texas -- with employees and clients across the country.