Drinker Biddle & Reath partner Fred Reish is calling the Department of Labor's 401(k) plan fee disclosure rules "unworkable," Reuters reports. That unworkability is especially true for broker-dealers offering their mutual fund supermarkets through 401(k) plans as brokerage options (SDBAs).

The 401(k) fee disclosure rules are set to take effect on April 1.

"You are talking about possibly hundreds of different compensation arrangements that firms will have to disclose," Reish wrote in a letter of clarification dated December 12 that he sent to the DoL.

Brokerages say that the information they will be forced to disclose will not be useful to plan sponsors because of its huge volume and given that each plan has a unique fee structure.

Revenue sharing with mutual funds is at the heart of the matter.

Firms are now exploring what approaches they can use to comply with the disclosure rule including a "phone book approach." This approach means investors with SDBAs will be able to see a list of fees the firm receives for any investment option. Others are considering whether to disclose a possible range of compensation they get for each fund they offer.

A brokerage employee who asked Reuters not to be named said "plan sponsors would shoot us if we sent them a prospectus for every fund a participant held."

Managing director Lisa Bleier of the Securities Industry and Financial Markets Association told the news service that they want guidance on the form the disclosures should take.

Brokerages argue that though disclosing these fees for selected funds would make sense, disclosing all the fees of the thousands of funds they offer is too grueling. But for Mercer Bullard, an associate professor of law at the University of Mississippi, it was the industry that "created the complexity and now they are complaining about having to disclose it. This is a reflection of the broker-dealers choosing to operate in an environment where they charge everyone differently for identical services."

Brian Graff, CEO and executive director of the American Society of Pension Professionals and Actuaries, said the revenue sharing between mutual funds and broker dealers is just part of doing business.

"If everyone paid the same amount of compensation for everything, it would be less complicated but ... that's not how the free market operates," he explains.  

Edited by: HFD


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