As retirement plan sponsors, small businesses assume many responsibilities regarding their employees' path to retirement, often acting as fiduciaries. Over the next year, any employer offering such plans faces new regulations from the Department of Labor.
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The rules, known as 408(b) (2), were originally scheduled to go into effect this past July, but have been postponed until April 1, 2012. Supporters of the new regulations say they will bring greater transparency to the retirement industry as a whole, through documenting the fees participants pay brokers and retirement plan contractors for managing their accounts.
Todd Kading, CFP, of LeafHouse Financial Advisors, LLC, said retirement plans are often a burden to small business owners, because upon becoming a plan sponsor, they are automatically a plan fiduciary and have to act in the sole interest of their participants, or employees.
"Most don't realize this," Kading said. "It is amazingly difficult. The company can't benefit from [decisions made regarding retirement plans]. If so, the business owner has to reimburse the plan the amount of money they saved [on a deal]."
Such gains can be found during audits conducted by the Department of Labor. Audits have been stepped up immensely, Kading said, due to the government agency’s concern over these types of transactions.
Doug Fischer, senior vice president of Retirement Policy Development at Fidelity, said it's important for plan sponsors to understand their fiduciary duties, including how to assess fees and expenses in their employee's plans.
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"It's good for a business to have a healthy retirement plan community," Fischer said. "When the Department of Labor starting thinking about service provider fee disclosure, they are also assessing the reasonableness of the fees people are being paid. It takes village to keep a retirement plan operating and in compliance."
Fischer said Fidelity is in favor of the upcoming rules to increase transparency. Retirement companies like Fidelity are in one of the best positions to collect these service provider fees and report on them to small businesses because they act as record keepers for the plan sponsors, he said.
"We are responsible to disclose the entire fund lineup and make it very clear what the expenses are in these funds," he said.
However if the plan also works with a separate broker or dealer besides the retirement fund company, the small business as fiduciary will have to go separately to that person or company to have their fees and duties disclosed.
Come April 2012, here's what changes small business owners, as plan sponsors, will be responsible for:
-Identifying all service providers working for their employees' retirement plans, including part-time workers, contractors and sub-contractors.
-Have these workers put all of the duties they are performing for the plan in writing.
-Have them put in writing whether or not they accept fiduciary responsibility.
-Find out how much these workers make either from the retirement plan company or assets.
-Make sure these fees are reasonable for the services being provided.