At a TPSU (The Plan Sponsor University Program) held at Rutgers University, Teresa Jacobs, a controller at a mid-size NJ company complained that her provider made calculating the exact fees too complicated. If a finance professional is having a hard time calculating fees, imagine how most HR and benefits professionals feel?
Teresa explained that fees were shown as a percentage of assets – she wanted dollar amounts which required paper and a calculator which seems like an awful waste of time. So what’s the problem and what can we do about it?
If employers paid their record keeper directly like most vendors, it would be easy to calculate fees. With the advent of mutual funds used in 401(k) plans in the 1990s, providers made plan sponsors an offer they could not refuse – they would perform all functions to manage their plan, even paying their advisor, without the employer having to writing a check. Magic? No, revenue sharing.
Fees imbedded into the cost of the mutual funds are used to pay the advisor, record keeper and administrator which sounds great until, like Teresa, you try to figure out who’s getting paid what – a basic fiduciary responsibility. Enter the DOL with new regs 408(b)(2) in 2012 that required all service providers to indicate prospectively how much they were charging for service rendered in a dollar amount.
Problem solved, right? Except some providers made their 408(b)(2) disclosures so complicated, it was hard for most people to figure out, even really knowledgeable people. There’s a rule pending that would require simpler disclosures to solve the problem. But you have to wonder why any service provider including your record keeper, advisor and TPA (Third Party Administrator) does not proactively disclose all compensation in simple dollar amounts so that busy people like Teresa don’t have to get out a calculator and paper.
