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New rules for corporate sponsored retirement plans

Any company, regardless of the number of employees or other measure of size, that provide their employees with self-directed retirement plans will have to comply with new disclosure rules as of November 1, 2011. That seems like a lot of time until you consider the mass of detailed work and training that must be completed before that date.
With the best of intentions, the Department of Labor has presented American companies with an overwhelming set of problems. The new requirement for retirement plan structure and fee disclosure seems straightforward enough--even a good idea. That is, until you realize what is actually required.
Problem One:
Any and all of the costs associated with any plan a company offers employees must be specifically stated. This must also include the costs associated with the investments in the plan, which as many already know, is difficult at best to analyze, as many fees are hidden or lumped together and effectively hidden. In addition, if a company provides more than one type of retirement plan, the formats explaining the plans and their fees must be identical; “Apples to Apples” is what DOL says. Making them “identical” is up to individual plan administrators at the company.
Problem Two:
While in the past, the plan sponsor had to provide information on the plan to all eligible participants, now the plan sponsor is also charged with ensuring that all eligible participants understand what is given to them to ensure that they can make fully informed decisions.   The question is, “how do you prove to the DOL that the participants understand the material?” 
This is complicated to achieve. Plan administrators are either going to have to create a testing mechanism, perhaps with eligible participant signatures, showing individual eligible’s level of understanding or find an automated system developed by some third party. 
We expect that many of the large plan providers, such as Fidelity Investments, Schwab and the mutual fund companies will create some type of electronic format to provide plan sponsors such testing, but it will still be the plan sponsor’s responsibility to ensure this covers their new-found responsibilities.
Furthermore, we expect some parts of this will end up being tested in court. But as most plan sponsors would like it to be someone else getting tested in court, you will want to make sure you have accurate records of employee getting and understanding the education materials and, you may want to require they sign off that they understand the information each year they participate.
The Bottom Line: The new education and disclosure rules for self-directed company sponsored retirement plans adds a new level of responsibility and potential financial liability to plan sponsors. While the detailed explanation of plan fees is something we heartily endorse, these rules will be onerous and plan sponsors who ignore or dismiss them will do so at their peril.
By Chester Wright, Chief Compliance Officer
Harmony Asset Management LLC

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.