Get ready, because here they come. Pending regulations from the Department of Labor require retirement plan vendors to disclose in writing just what services they provide to qualified retirement plan sponsors, and what sorts of compensation they're receiving-including gifts, awards, trips, research, finder's fees, soft-dollar payments, fees deducted from investment returns and other kinds of compensation.

The regulations in question represent just one of three key Labor Department proposals published over the course of the past year, aimed at clarifying the duties of plan fiduciaries and plan advisors and supplying clearer, more accurate information to participants.

So what sets the so-called "reasonable contract or arrangement" fee disclosure regulations, known as 408(b)(2) for short, apart from other new Labor Department proposals? Simple. They put the onus on advisors and other service providers to disclose-by contract or other agreement-exactly what they're getting paid and how. The regulations in question were published in the Federal Register on December 13, 2007. (They can be found at

"In the past, the burden was almost entirely on the primary plan fiduciaries to investigate and understand the arrangement between a plan and a service provider and to determine if it was reasonable," says Fred Reish, head of the employee benefits practice at Reish, Luftman Reicher & Cohen, a Los Angeles law firm representing plans and plan fiduciaries in the public and private sector.

Whereas providers may have made such disclosures in the past, now it should be clear what these communications should include, specifically, detailed information about both direct and indirect compensation they receive. The proposed standard will make it incumbent on bundled service providers to disclose all of the services they provide in the bundle, as well as the aggregate direct compensation or fees that will be paid for it-including direct and indirect compensation received by the service provider (and its affiliates or subcontractors) from third parties.

Experts believe that proposed regulation 408(b)(2) will be finalized before the end of this year, meaning the rules could become effective as early as February or March of 2009.

What Must Be Disclosed
Bert M. Carmody, director of fiduciary consulting with retirement plan consultant Fiduciary Risk Management LLC in Atlanta, provides the following example of how it might work:

"Let's assume record-keeper ABC, a bundled provider, supports the XYZ retirement plan, and separately, Joe Smith is the investment advisor to the plan.
"For Joe Smith to 'do it right,'" says Carmody, "he would want to make sure he and his firm disclose all direct fees his company is charging the retirement plan, the compensation Joe's firm received from the bundled provider, and any other compensation Joe Smith receives from ABC's funds or other funds." Furthermore, Joe Smith would need to "insist" that ABC makes fee disclosures of its own.

The fees in question, Carmody says, would include 12b-1 fees, shareholder service fees, sub-transfer agent fees, soft-dollar revenue sharing arrangements and any other compensation that ABC or Joe receives because they are servicing the XYZ plan. "Disclosing only published fees only identifies a small portion of fees charged to the plan."

Why Now?
The regulations show up at a time when lawmakers are speaking out about plummeting 401(k) plan balances and the remarkable lack of transparency when it comes to plan fees.