The Prudent Investor Blog

5 Things a Prudent Investor Should Know About 408b(2) Disclosures

Posted by Benjamin Coakley on Fri, Jul 27, 2012 @ 09:17 AM

Enacted in the Summer of 2012, ERISA Section 408b(2) is part of a long term strategy beingprudent investor pillars implemented by the Department of Labor (DOL). It is designed to facilitate and enhance the exchange of information between all parties related to a company sponsored retirement plan. The intent of this strategy is to improve the transparency of retirement plans as it relates to the fees and services associated with them. Another intent of this new strategy is an increase in disclosures of conflicts of interest. The ultimate goal is to help employees make better informed decisions and ultimately reach their retirement goals.  The following 5 things are important for the prudent investor know about these new regulations.

  • Prudent Investors should hold their advisors accountable: It is important to meet with your advisors in regular intervals to discuss changes in the regulations like 408b(2).  This is the best way to protect yourself and fulfill you fiduciary responsibility.
  • July 1st was the day of reckoning: All service providers should have disclosed all fees by July 1st.  It is very clear in the rules what should happen to noncompliant service providers.
  • Not all service providers are created equal: There will be some service providers that will not comply with these new regulations.  Some will try to confuse the plan sponsor with elaborate documents that resemble connect the dots exercises.
  • Not all plans are covered: It is important to know if your plan is covered under 408b(2). 401(k), profit sharing, and defined benefit (traditional pensions) are the only plans covered at this point.  However, if you have another type of retirement plan, understanding the fees and services provided is still recommended. 
  • 408b(2) should be the minimum standard: This regulation raises the standards for all service providers.  However, these are still just minimum standards.  Your service providers should go above and beyond in their service in exchange for fair compensation.

Remember that these new rules are imperative to follow.  A prudent investor is responsible for keeping up with new regulations.  The Department of Labor typically steps up enforcement of new rules and regulations in the first year or so after they are enacted.  It is very important for you to not become a case study for future generations on how not to comply with these regulations.

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Tags: prudent investor, 408b(2), regulations