DOL proposes fee disclosure ‘guide’ requirement

May 13, 2014

On March 11, 2014 the Department of Labor released a proposed regulation that, if adopted, would require that certain service providers required to make fee disclosures under the 2012 408(b)(2) regulation provide a separate guide or ‘roadmap’ to those disclosures.


Under the 2012 408(b)(2) regulation, certain service providers are required to provide information about fees and certain related information to plan sponsors. Service providers are not, however, required to provide that information in a single document but may use different documents from separate sources (e.g., a prospectus and a service contract).

At the time that regulation was finalized, some were concerned that this multiple document approach might be confusing, and DOL requested comment on whether the regulation should be revised to include a summary disclosure or other formatting requirement. DOL's guide/roadmap proposal addresses this issue.

Guide/roadmap proposal

Under the proposal, if certain specified fee disclosure information is not contained in a single document, or if the single document containing that information is in excess of a specified minimum number of pages, a service provider would be required to provide, as a separate document, a guide "specifically identifying the document and page or other sufficiently specific locator, such as a section, that enables the responsible plan fiduciary to quickly and easily find [the specified] information ….”

The information required to be identified in the guide includes:

The description of the services to be provided.

Any statement concerning services to be provided as a fiduciary and/or as a registered investment adviser.

The description of all direct compensation, indirect compensation, compensation between related parties, and any compensation for termination of the contract.

The description of all compensation for recordkeeping services.

Information (compensation, annual operating expenses, and ongoing expenses) required with respect to those providing services as an investment adviser registered under either the Investment Advisers Act of 1940 or State law or a recordkeeping-plus-investment-services platform.

The guide must also identify a person that the responsible plan fiduciary may contact regarding these disclosures.

Finally, changes to the guide must be disclosed annually.


It is clear from the preamble to the proposal that DOL is convinced that something more is needed to help fiduciaries (particularly fiduciaries of small- and medium-sized plans) to navigate complicated fee disclosure documents. From the point of view of providers, the approach taken in the proposal, essentially a separate index that shows ‘where to find needed information,’ is less burdensome than the other approach DOL considered, a document providing a summary of key information. DOL is also considering allowing an exemption from the guide requirement "if producing the guide were either impossible or unreasonably burdensome.”

DOL is asking for comments on whether a summary might be a better approach, whether it should provide an "impossible or unreasonably burdensome" exemption and whether there is any possible alternative "tool to help responsible plan fiduciaries navigate and understand the required disclosures." It has also asked for comments on (1) the page number threshold for a guide/roadmap disclosure requirement (that is, how many pages does a single document have to have before a guide is required?), (2) the proposed locator criteria (page and/or section number) and (3) whether the guide should be provided annually.

DOL stated in the proposal that it intends to conduct focus groups with small plan fiduciaries to "explore current practices and effects of [the final fee disclosure regulation]. This may provide information about the need for a guide, summary, or similar tool to help responsible plan fiduciaries navigate and understand the required disclosures.”

It is clear that DOL's commitment to this proposal is somewhat tentative and, based on comments and the results of the focus groups, its approach could change again.

Cost vs. benefit

From the sponsor's point of view, a guide to complicated documents would generally be helpful. DOL is clearly concerned about the ability of small- and medium-sized employers to navigate complicated documents, but even for large employers a guide will make the task of understanding fee and related data easier.

DOL's theory, with respect to this additional disclosure requirement, is that service providers will be able to exploit economies of scale, and that the preparation of a guide/roadmap will add to the efficiency of disclosures:

The positive net benefit of the guide requirement arises from specialization and economies of scale. Covered service providers are most familiar with the documents containing the required disclosures, and will make similar, if not identical, disclosures to many different responsible plan fiduciaries. Therefore, the Department expects that covered service providers will be able to find the information and create a guide, when required, at a lower cost than the responsible plan fiduciary.

Some service providers have objected that this is not (or not always) the case – that many of the documents involved are unique and that provision of a guide (or, worse, a summary) will require additional procedures (e.g., systems programming) on top of what has already been a burdensome project (the fee disclosure project generally).

* * *

Comments on the proposal are due by June 9, 2014, although, after DOL has conducted the focus groups, DOL may reopen the comment period.

We will continue to follow this issue.

October Three, LLC is a full service actuarial, consulting and technology firm that is a leading force behind the reemergence of defined benefit plans across the country. A primary focus of the consultants at October Three is the design and administration of comprehensive retirement benefits to employees that minimize the financial risks and volatility concerns employers face.

Through effective plan design strategies October Three believes successful financial outcomes are achievable for employers and employees alike. A critical element of those strategies is the ReDB® plan design. The ReDefined Benefit Plan® represents an entirely new, design-based approach to retirement and to the management of both the employer’s and the employee’s financial risk, focusing on maximizing financial efficiency and employee value.

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