Small businesses sponsoring retirement plans will have a new layer of regulations to follow that go into effect on July 1. The regulations have been promulgated by the U.S. Department of Labor and were first introduced more than a year ago.
The regulations were previously scheduled to go live last July and then again on April 1, but each of those deadlines has been extended.
The rules are referred to as 408(b) (2) and are designed to provide more transparency to employees by listing all fees paid to any brokers or retirement agents for account management services that are connected to the company’s retirement plan.
Experts say the retirement plans can be quite complex for small businesses. As sponsors of the plan, a small business owner must always act for the benefit of the employees. If a decision made by a business owner were to benefit that company, regulations require that the business owner pay back any gains. If not, those gains could be discovered during random audits conducted by the Department of Labor.
“It’s good for a business to have a healthy retirement plan community,” said Doug Fischer, senior vice president of Retirement Police Development at Fidelity. “When the Department of Labor started thinking bout service provider fee disclosure, they are also assessing the reasonableness of the fees people are being paid. It takes a village to keep a retirement plan operating and in compliance.”
Some financial companies, like Fidelity, are able to handle the collection of any fees paid to retirement providers and then act keep detailed records of those fees for the company.
In situations where there is an individual broker or dealer involved, in addition to a financial services company, the owner of the small company ensure that fees and duties of that individual are properly documented and disclosed.
Beginning July 1, owners of small companies sponsoring retirement plans will be required to gather and disclosure the following information:
• Identifying all service providers working for their employees’ retirement plans, including part-time workers, contractors and sub-contractors.
• Put in writing the duties that the workers are performing for the plan.
• Whether these workers are or are not accepting fiduciary responsibility
• The amount of money the worker earns from the retirement plan company.
• Whether these fees are reasonable, considering the work being done for the plan.