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Beyond Retirement Plan Disclosure

Showing retirement plan sponsors how to assess the value they're getting
for their money can help to establish your value as well.

Article originally posted on

About Tim Minard About the Author

By Tim Minard, Senior Vice President, the Principal Financial Group®

The first of the new disclosure regulations — covered service provider to plan sponsor — is finally here. And while plenty has been done to get ready to comply with the July 1 deadline, the real work — and your opportunity — may just be starting. How do you help plan sponsors make the best use of the disclosures they will receive? And with so much focus on the fee part of disclosure regulations, how do you combat the misperception that the lowest fees are the best value for the plan?

About the new regulation
The deadline for the ERISA section 408(b)(2) plan sponsor disclosure regulation is July 1, 2012. The regulation calls for service providers, including financial professionals and third party administrators (TPAs) who work with retirement plans — and are covered service providers under the regulation — to disclose to plan sponsor clients the fees they receive and the services they provide. While some have been providing much of this information already, the new requirements, and the laser-focus on one part of the disclosure — fees, makes this an important opportunity to help clients not only understand the information they will receive but also help them put it in perspective so they can use it to meet their obligations.

Plan sponsors have a fiduciary duty to evaluate whether plan fees are reasonable for the services received. Your first opportunity is to make sure your clients are fully aware of the services you are providing for the fees they pay. Listing your services as part of a formal agreement and discussing the value you bring with your clients is an important step.

Another way you can showcase your value is by helping plan sponsors assess the value they receive from any other retirement plan service provider. In so doing, you can reinforce your expertise and provide a service plan sponsors will appreciate.

It's more than a number
A key is in helping plan sponsors understand that "reasonable" doesn't necessarily equate to the lowest fees. There is a difference between what they may receive for the lowest fee possible versus paying reasonable fees for varying degrees of service. It's important to focus on helping clients understand the services they are receiving and assess the value of those services.

Without this perspective, there is a risk that sponsors could focus only on fees and flee to lowest cost at the expense of essential services that can help make the plan more successful.

In addition to cost, other factors to consider include:

  • Objectives of the plan
  • Benefits of the services to plan participants
  • Services received — and the quality of those services
  • Reputation of the service provider and their commitment to the retirement industry

The evaluation process
Start by helping the plan sponsor consider the objectives for the retirement plan. What do they want to achieve? Then consider the value and impact of the services received based on those objectives.

Next, answer these three questions to help your client determine if what the plan receives for the fees paid is helping to put it on track to meet the objectives:

  1. What is being paid? Help the client learn all aspects of the plan's fee structure and services — including fees for general plan administrative services, participant education/communication and investment-related expenses.
  2. What is received in return? Help the client understand the breadth and depth of services received for the fees paid. Consider the types of services available, including personalized or unique services; plan administrative services; consulting services; participant education; plan documents, plan compliance and government filing; plan reporting and trust and custodial services.
  3. What is the assessed value? Help the client strike a balance between the overall cost and the services the plan sponsor expects to receive. Recognize that a number by itself doesn't tell the whole story. Assess whether the fees are within a reasonable range for that specific plan.

Available resources
A thorough retirement plan evaluation can take time. But as with any task, the right tools and resources can help you get it done faster — and better.

One useful resource is the Assessing Retirement Plan Value hub from The Principal. It offers tips and tools to help you and your plan sponsor clients:

  • Understand retirement plan costs
  • Review plan services
  • Navigate cost considerations
  • Evaluate fee reasonableness
  • Address participant questions

Preparing for the participant disclosure
Many plan sponsors are looking ahead to the next new regulation, ERISA section 404(a) disclosure to participants. Helping your clients have a good understanding of service provider disclosures, gives them a chance to focus on the disclosures they will need to make to participants by August 30, 2012.[1] More about how you can add value with participant disclosure in my next post.

Overall, disclosure regulations mean opportunities for financial professionals to help their clients navigate the rules and put the disclosed information into proper perspective. By helping clients assess the value their getting for their investment, you will reinforce your value as well.

This is the compliance date for plan with a 01/01/2012 plan year.

t12061902wh — 06/2012


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