A showdown over fee disclosure legislation, and the future of the DOL’s interim final rule for disclosure to plan sponsors, should be decided soon. Congress is desperately trying to cobble together a tax extenders and jobs bill, HR 4213.
The House-passed version includes fee disclosure provisions – the Senate package does not. The Department of Labor has completed its rule for disclosure to plan sponsors by service providers but is holding off issuing the rule to see if Congress acts.

The House provision is a melding of proposals from the Committee on Education and Labor and from Representative Richard Neal, chair of the Select Revenue Measures subcommittee of the Committee on Ways and Means.
 
Two areas of concern, an index fund requirement and new rules for providing advice, were dropped from the new proposal. The provisions amend ERISA and the Internal Revenue Code, so they apply to participant directed individual account plans subject to ERISA (including some 403(b) plans), governmental section 457 plans, and non-ERISA section 403(b) plans.

Here are some highlights (http://www.psca.org/LinkClick.aspx?fileticket=7nvdJy5uCUc%3d&tabid=107):

Disclosures to plan administrators

Service providers, before entering into a contract or arrangement to provide services to an individual account plan, are required to provide a single written statement to a plan administrator (the plan sponsor) containing a detailed list of services to be provided, how much revenue they expect to receive, how they will be paid (i.e., revenue sharing or direct payment), and if revenue will vary based on specific plan investments.  There are three unbundling buckets: administration & recordkeeping, investment management, and all other services.

However, there is a catch – a service provider is defined as an entity providing administration, recordkeeping, consulting, investment management, or investment advice services to the plan under a contract or arrangement.

This means that investment management fees are outside the direct scope of the bill for the vast majority of plans. (Of course, in small and mid-size plans the investment manager may not even know the plan exists.) The dilemma is resolved by tasking a service provider who is providing recordkeeping services with collecting the investment-related fees and information and including them in their disclosure statement. This information will also be used to satisfy the plan administrator’s fee disclosure requirements to plan participants and beneficiaries.

Service providers will also have to file an annual statement for each future year of the contract and a notice of material changes to the contract or arrangement. Services totaling less than $5,000 are not subject to the disclosure requirements, but the provider must notify the plan administrator that the exception applies.

Disclosure to plan participants
 
Plan administrators are required to furnish plan participants and beneficiaries that can direct plan investments with an advance notice of investment options, notice of material changes, and new disclosures in a quarterly benefit statement (annually for plans with fewer than 100 participants.)
 
The recordkeeping service provider is required to furnish the information necessary for these disclosures. Participants must  also be informed of their right to request all the disclosures made to the plan administrator.

The advance notice must describe each investment option; its objectives; whether it is passively or actively managed; if it is a comprehensive, stand-alone diversified investment; how to obtain additional information about the investment; and a statement that factors other than fees should be considered in selecting an investment.
 
The advance notice must include a fee comparison chart for all plan investment options with charges allocated into four different categories. The chart will also include historical returns with benchmarking against similar investments.

For plans subject to ERISA, new fee disclosures will be required under section 105, relating to quarterly benefit statements. Non-ERISA plans will provide quarterly benefits under a new Code provision. The benefit statements will describe the asset class allocation of the individual’s investments, the starting and ending balance for the quarter, employee and employer contributions, itemized fees that were directly deducted from the account, and net returns for the year.
 
Each investment option must separately report its percentage of the overall account, starting and ending balance, annual operating expense, how to obtain additional information about the investment, and a statement that other factors besides fees should be considered in evaluating an investment.
 
Operating expenses may be expressed in dollars or as a percentage of assets; but, in the latter case, a dollar estimate based on the fund balance or a hypothetical $10,000 investment must be provided.

In a key Profit Sharing/401k Council of America  victory, the quarterly disclosures are based on the account as of the last day of the quarter.

Next steps

In order for Congress to pass the extenders bill, either the House or Senate is going to have to blink, and the fee disclosure provision will be added or dropped from the final bill. If the disclosures are enacted, the DOL rule, the contents of which are unknown but likely generally follow the proposed rule, will be withdrawn, and new regulations will be proposed.
 
If Congress fails to enact the extenders bill by July 4th, the DOL may decide to release their rule even thought Congress has not acted.