The U.S. Department of Labor's new regulations on 401(k) fee disclosures will serve as a wake-up call to plan sponsors and participants alike, once they stop hitting the snooze alarm, that is.

Thus far, sources say that the reaction to the fee disclosures, which were to be sent to plan sponsors by July 1 and to plan participants by Aug. 30, has been a snore.

"Right now, I think things really haven't changed that much," said Brian Evans, Principal of Bond Street Wealth Management, and Founder and Portfolio Manager of the Madrona Funds. "I think many of the plan administrators either don't understand the new disclosures or they aren't worried about them. I see no interest, and mostly apathy." Bond Street manages $110 million in assets under management.

Other defined contribution investment only shops-like Fidelity Investments, which received very little feedback from the plan sponsors-saw other reasons for the apparent apathy. "Fidelity has always provided these disclosures on fees and services to the plan sponsors that buy Fidelity funds," said Krista D'Aloia, Associate General Counsel at Fidelity. "As a result, after July 1, we had very few inquiries from plan sponsors and no spikes in calls, because there were really no surprises for our clients."


After kicking around the idea for years, the DOL released the final version of the fee disclosure rules in February with the idea to bring some transparency to the country's roughly 50 million 401(k) accounts that hold almost $5 trillion in assets, according to the Employee Benefit Research Institute.

The final rules put a deadline of July 1 by which service providers (financial advisors, fund companies, accounting firms and others) must issue a disclosure form-Form 408(b)-to plan sponsors. The forms, among other things, gave detailed account of what fees the service provider was charging. On Aug. 30, the deadline passed for plan participants to be given the similar information. In some cases, employers and employees were seeing the fees they've been paying-previously long-buried in complex revenue sharing arrangements among service providers or simply not disclosed at all-for the first time.

"You got to give the DOL credit for pushing transparency into an area that really didn't have much," said Stuart Robertson, president of ShareBuilder 401(k), which offers funds to small- and medium-sized employers. ShareBuilder 401(k) is a subsidiary of ING Direct bank.

Confusion, Then Questions

That said, it seems like many plan sponsors may not have been ready for all that sunlight. A recent ShareBuilder 401(k) survey showed that 83% of small business owners (those with fewer than 100 employees) were more confused after reading the fee disclosure forms, mostly about what the fees meant and whether they were fair or not. Also, 68% said they would not know how to answer their employees' questions about the plan fees.

"The big question then becomes, okay, I can see I am paying X, but is that good or bad? What's the industry average?" said Robertson, adding that once these plan sponsors start comparing data, there will be a push to lower costs. The industry average for all-in fees for 401(k) plans with less than $1 million in assets falls between 99 and 185 basis points, according to a 2011 study by the Investment Company Institute.

However, sources have noticed a small uptick in queries from plan sponsors and administrators, and these queries, mostly centered on fees and how they're paid, could swell into a pricing war once plan sponsors and their participants have a chance to absorb the information and, more importantly, compare it to what other advisors and fund vendors are charging.

Some financial advisors are already seeing that push to lower costs occurring. "We've seen that service providers are getting increased requests from plan sponsors to renegotiate some fees or scrap them altogether-other service contracts are being put out for bid," said Edward Ferrigno, Vice President of Washington Affairs for the Plan Sponsor Council of America, a national, non-profit industry association that represents 1,200 companies and their 6 million employees.

Others agreed they were seeing some activity among plan sponsors because of the fee disclosures. "The biggest change we're already seeing is the focus by plan sponsors on benchmarking," said Lori Lucas, Executive Vice President of Callan Advisors, a San Francisco-based firm that counsels retirement plans. "They are trying to understand the fees, and I think the net result will see the plan sponsor rethinking the fees, both as to their size and to how they are paid."

Lucas predicts there will be a move away from revenue-sharing arrangements, in which the advisor's fee is bundled within the expense ratio of the mutual fund, as employers opt to have services billed as straight administrative charges so they can be better tracked and understood.

That's important because the plan sponsors, as fiduciaries of the retirement plans, have the duty to act if they learn that the fees they are paying are out of line. Indeed, the DOL said plan sponsors had the fiduciary responsibility to fire any service provider that did not provide fee disclosure by the deadline.

"Now, the plan sponsors have the fee disclosure data and once they digest it, they're going to want to know what to do with it," said Lucas. "The last thing they should do is just file it and forget it."

If advisors and fund companies want to look for a silver lining as they field phone calls from plan sponsors, there is one, said Blaine Aikin, CEO of Fiduciary 360, a Bridgeville, Penn.-based company that trains and certifies investment fiduciary advisors. "This is actually a real opportunity for some advisors to provide consulting services to plan sponsors," explained Aikin, adding that because the sponsors are under a due diligence requirement to use this information once it is provided to them, they may need an advisor to not only help gather up all the information from the various providers, but break it down and explain it to them.

"An advisory firm that is on the ball can show plan sponsors that they can help them manage their fiduciary duty by consulting them on who is charging what fee for what service, and assess whether it is fair."

For the advisor community as a whole, Aikins noted, especially for the portion of the community that already assumes the fiduciary role, the fee disclosure rules were a very good thing. "Those advisors have been operating at kind of a disadvantage to those entities that charged hidden fees or had other undisclosed conflicts," he said. "It was a bit of an unlevel playing field."