Just last October, U.S. Rep. George Miller, a California Democrat and the chairman of the House Education and Labor Committee, led a hearing by his committee, and testified that over the past 12 months, more than a half trillion dollars has evaporated from 401(k) plans as a direct result of the crisis in the markets. Miller had been the sponsor of legislation seeking to broaden fee disclosure by plan officials to participants, but the progress of the legislation was postponed last spring by what a Miller spokesman called "partisan roadblocks" and an unenthusiastic White House.

At the October hearing, Miller did not explicitly mention legislation, but he made clear he was worried about the increasing rate of 401(k) plan hardship withdrawals and loans and the fact that "401(k) holders lack critical information about how their money is managed and what fees they pay."

Steps To Be Taken Immediately
There are several steps advisors need to take immediately to prepare for the regulations, says attorney Reish. Not only does 408(b)(2) shift the burden to the service provider, he notes, but the information must be delivered sufficiently in advance of entering into the arrangement to give the responsible plan fiduciary time to review the information before entering into the transaction.

"Failure to fulfill the written agreement and disclosure obligations will cause the service provider's engagement to be a prohibited transaction, which means, at the least, that the service provider will presumably have to pay back any compensation it received and that excise taxes may be imposed on the service provider," Reish says.

Time is of the essence: The Labor Department has said it would provide 90 days for implementation once its regulations are published in the Federal Register, and whereas Reish believes the industry may receive just a bit more lead time, he believes 408(b)(2) regulations could be published well before the end of 2008, and he believes they will be scheduled for implementation by mid-2009.

Reish says financial advisors need to act now and make sure to do all of the following if they really want to be prepared:

Talk to key supervisors, be they broker/dealer or independent RIA representatives, about the disclosures you will need to make in order to comply with 408(b)(2).

Realize you will need a written contract or agreement delivering extensive information on three subjects, namely: the services you are delivering; the fees-both direct and indirect-that you are receiving related to plan services; and any potential conflicts of interest that may arise.

If you aren't entirely sure that your plan sponsor clients will fully comprehend the updated information you're preparing to give them, takes pains to meet with them and explain everything now-before the regulations go into effect.

Employer-Paid Fees
Carmody is blunt about the bottom line. "Advisors and other service providers need to make sure they're disclosing all fees and expenses-including indirect compensation such as revenue from directed trades, custody, revenue received based on plan assets-and insist that their clients' service providers do the same," he says. "While this may be more work, it is a unique opportunity to provide value added to their clients."