The U.S. Labor Department has taken out a controversial part of its 401(k) fee disclosure rule that could have required retirement plan providers to create a summary document, or "roadmap," of all of its fees to employers.
But the idea is not going away. In coming days the department is expected to issue its final fee disclosure rules, which will require all providers that work with 401(k) plans to disclose their fees to plan sponsors. In June, the agency plans to issue a separate proposal requiring providers to create the summary document, according to the agency's regulatory agenda published January 20.
By breaking out the requirement for a summary document, many worry that when the fee disclosure rules take effect, plan sponsors will be left with a lot of paperwork they do not understand.
The Labor Department came out with the current version of the rule in July 2010 and gave providers 12 months to comply. After industry opposition, the agency extended the deadline to April 2012. Most recently, people who spoke to the agency said the final rule would be out by end of January, with a later effective date.
The last version of rule mentioned a need for a summary disclosure, which caused much concern among industry officials because it was the first time the agency had mentioned it and because they said they did not understand what it would entail.
To that end, the industry may welcome a separate proposal and time to comment on it, observers said.
Plan providers, which include recordkeepers, mutual fund companies and advisers, worry that they will be required to create disclosure documents and then revamp them later.
"We don't know what this means but we are worried that if we have a bunch of rules that we have to comply with and then this roadmap is going to require us to do something differently, it will be very inefficient and expensive," said Brian Graff, chief executive and executive director of the American Society of Pension Professionals and Actuaries.
Others say that it does not make sense for the agency to go forward with its fee disclosure rules without providing details on what the roadmap, or summary disclosure, will require.
"I am fearful of clients receiving 50 or 100 pages of materials without any explanation as to why they are getting it," said Fred Reish, a partner at law firm Drinker Biddle & Reath.
The Department of Labor did not return calls and emails requesting comment.
Employers and their 401(k) plan providers are already frustrated that the agency has yet to come with its final fee disclosure rule.
Lisa Bleier, managing director of the Securities Industry and Financial Markets Association, declined to comment on what it could mean for members that the agency is separating the roadmap portion of the rules. But she did say that she hoped the agency provided some guidance soon about when the final fee disclosure rule would be out and what its effective date will be.
While it would be better to include the requirement for a summary disclosure in the agency's fee disclosure rules, late is better than never, said Barbara Roper, director of investor protection for the Consumer Federation of America, a Washington, D.C.-based advocacy group.
"We don't want the industry to provide documents that are so complex and impenetrable that plan sponsors can't make heads or tails of them," she said. "We need the summary."
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