For years, the fees associated with 401(k) plans have been buried in the fine print of quarterly statements, making it virtually impossible to determine the total costs of the plan. But under new regulations hitting this year, the total cost of a 401(k) plan will be visible for all to see. If you own your practice and employ staff, these regulatory changes will be significant.
Under revised Employee Retirement Income Security Act regulations, beginning April 1, 2012, plan providers will be required to provide an aggregate plan fee disclosure to all plan sponsors (employers), specifying the fees paid to each service provider of the plan and showing how much the plan provider is being paid.
What might this mean to you? Often, physicians are (unknowingly) established as the sponsor of their practices' 401(k) plans. Until now, that hasn't meant much, because in most cases a practice's financial adviser helps manage the plan and provides oversight.
Now that's going to change. As a plan sponsor, you carry the fiduciary responsibility to oversee the plan, meaning that you are required to act in the best interest of plan participants, diversify your plan's investments, and pay only reasonable fees or expenses.
What's considered reasonable? Small and mid-sized companies tend to pay higher per-participant fees because they have fewer participants to spread fees across and have less ability to negotiate with plan providers. According to a 2008 survey by Deloitte Consulting, LLP, plans with fewer than 100 participants pay a total of 2.03% in fees, whereas plans with 100 to 999 participants pay only 0.89% in fees.
Using benchmarks such as these, you can determine whether your plan's fees are too high. If they are, pursue less expensive alternatives.
Remember, as the plan sponsor and fiduciary, you are personally liable for any losses to the plan resulting from a breach of duties. And it's possible that as a fiduciary, your lack of action could be deemed a breach of responsibilty, especially if the plan participants (your employees) have lost a considerable portion of their account balances to fees.
In addition, the new rules require you, as the plan sponsor, to provide participant fee disclosure statements to all plan participants for plan years starting on or after November 1, 2011.
All physicians with 401(k) plans will be affected by these new regulations, either as an employer (plan sponsor) or as an employee (individual plan participant)—or both. So now would be a good time to begin educating yourself about these new fee disclosure rules.