Participant Fee Disclosure

My understanding is that TPA fees can be paid from participant accounts on a pro-rata basis.  In some cases, this is done on an ongoing basis in the form of a monthly, quarterly or annual deductions.  In other cases, we (as a TPA) will deduct a one-time fee to apply toward annual admin costs and then resume our billing directly to the plan sponsor on an ongoing basis.  If we are charging the participant accounts on an ongoing basis, we will include a specific dollar amount or basis points on a 404a-5 fee disclosure notice.  If not, our fee disclosure will simply say that a plan sponsor may pay the TPA admin fees or it may be charged to their account.

1) When deducting from an account, must the fee disclosure notice reference a specific dollar amount or is okay to simply state that TPA fees may be deducted? 

2) If we must specify, it is okay to be in the form of basis points rather than a dollar amount? 

3) Is this required even if the payment from the plan accounts is just a one-time payment and will not be ongoing, keeping in mind that the participants will see the fee on quarterly statements?  I ask because I have just done a few of these and did not provide an updated 404a-5 notice to reflect this one-time payment.  I cannot imagine having to do this every time an employer wants to pay from the plan.

Thanks!

Your annual 404a-5 disclosure has to disclose administrative service fees that may be charged against participant accounts (such as record keeping fees and TPA fees).  It can be a dollar amount or a formula, but must explain what the fee is, it is not enough to say that you might charge a fee.  There other requirements such as the comparative chart and investment instructions but that is another discussion.

Your quarterly 404a-5 disclosure has to specify the dollar amount that was charged and what it was charged for.

I'm reviewing them right now.  Some of the canned stuff that spits out includes "The plan may also incur unexpected expenses that may be deducted from participant accounts" and "Your account may pay a pro-rata share of certain administrative expenses."

Right or wrong, there is some pretty vague stuff out there.

Yea there are a lot of disclosures out there that do not come close to meeting the requirements.  At this point, there really is no excuse for not making a good faith effort to disclose even the most complicated formula.  For TPA fees, it is usually very straight forward though 

Since the annual 404a-5 notice needs to describe the fees that could potentially be charged to the participant's assets, you should err on the side of disclosing the possible fee.  If possible, you can indicate on the notice that the fee may be paid by the plan sponsor and/or the participant.  

As to the comments of RBG and Bird above, they are correct. We use software from an outside provider and the default language is pretty vague and you really need to work with it to get in more details.

Thanks all!  So, are you saying that we need to disclose actual TPA fees in a dollar amount or formula that may be charged instead of simply saying that there are TPA fees (with no specific amount) that could be deducted?

This makes sense, but is not how we have done it in the past except when we know that a plan sponsor is paying from the plan on a continual basis.  Most of our plan sponsors pay outside of the plan, but I think you are saying that the disclosure should reflect the fees that MAY be applied to participant accounts (even if unlikely). 

Are you all doing this?

3 hours ago, 401(k)athryn said:

are you saying that we need to disclose actual TPA fees in a dollar amount or formula that may be charged instead of simply saying that there are TPA fees (with no specific amount) that could be deducted?

If you want to comply with 404a-5, absolutely.  This should be disclosed in your annual notice and any changes should be disclosed at least 30 days before the fee is incurred.  You shoul'd also disclose all the participant level fees that may be charged if a participant utilizes a certain option like distributions, loans, etc.

Are your plans with platform RKs like JH, Principal, etc?  If so, it should be fairly easy to cover.

3 hours ago, 401(k)athryn said:

Most of our plan sponsors pay outside of the plan, but I think you are saying that the disclosure should reflect the fees that MAY be applied to participant accounts (even if unlikely).

Most of mine pay outside of the plan as well, but if it can  be paid from the plan, you have to disclose that and what the fee is. 

3 hours ago, 401(k)athryn said:

Are you all doing this?

Yes, it has been required since 2012.  There are still a lot of bad / vague disclosures out there, but the DOL is looking at both 404a-5 and 408b-2 disclosures, and it should be pretty easy to disclose on the TPA level.   

3 hours ago, 401(k)athryn said:

Thanks all!  So, are you saying that we need to disclose actual TPA fees in a dollar amount or formula that may be charged instead of simply saying that there are TPA fees (with no specific amount) that could be deducted?

This makes sense, but is not how we have done it in the past except when we know that a plan sponsor is paying from the plan on a continual basis.  Most of our plan sponsors pay outside of the plan, but I think you are saying that the disclosure should reflect the fees that MAY be applied to participant accounts (even if unlikely). 

Are you all doing this?

Yes.  Our notification tells the participants that fees may be paid by the plan sponsor, the plan or the participant, if there is any chance that the participant may be paying all or part of any fee.  Then we do our best to be as specific as possible.  Some fees are a lot easier to quantify than others.

Thanks, I think!

We are very specific about transaction fees for loans and distributions in our 404a-5 disclosures, just not admin fees.  For our sponsors pay out of pocket and always have and always will, there is no issue.  For those that pay consistently out of the plan, it has been included in the 404a-5.  I am concerned right now about those plan sponsors that choose to pay one time from plan because I do not think we have always disclosed this to participants other than vague language about TPA admin fees that might be charged (with no $ or formula). 

Honestly, I don't know that it helps a participant to know what the exact dollar amount of admin fees will be because they will be applied pro-rata and; therefore, will be based upon balances and also may be based upon the number of participants, so the employee reading the 404a-5 will not actually know how much is going to be charged to their account, just the amount that MAY be charged to the plan as a whole.

RatherbeGolfing - We use mostly platforms, such as John Hancock, American Funds, Principal, but I don't see how this makes it easier to disclose admin fees.  

2 minutes ago, 401(k)athryn said:

Honestly, I don't know that it helps a participant to know what the exact dollar amount of admin fees will be because they will be applied pro-rata and; therefore, will be based upon balances and also may be based upon the number of participants, so the employee reading the 404a-5 will not actually know how much is going to be charged to their account, just the amount that MAY be charged to the plan as a whole.

I agree.  But we are required to disclose lots of things that really don't make sense to participants.  Have you ever seen a participant read the comparative chart for investment performance?  It might as well be in Chinese and goes straight in the trash can at most meetings, but somehow it is supposed to help them make informed investment choices...

8 minutes ago, 401(k)athryn said:

RatherbeGolfing - We use mostly platforms, such as John Hancock, American Funds, Principal, but I don't see how this makes it easier to disclose admin fees.  

They already have the most of notices prepared, all you need to do is add your fees before distributing to plan sponsor/participants. 

Depending on your fee structure, it could be something fairly simple like:

A base of $X plus $Y per participant, deducted from participant accounts based on the relative size of each account (pro rata) unless the Plan Sponsor elects, at its own discretion,to pay for some or all of the Plan's administrative service expenses through non-Plan assets.

Thank you, Golfer.  I appreciate everyone's input.