1. MAKING SENSE OF FEE DISCLOSURE:
A PARTICIPANT’S PERSPECTIVE
WHITE PAPER … MAY 2012
Gina Gurgiolo, JD, LL.M
SENIOR CONSULTANT
INTRODUCTION
In October 2010, the Department of Labor finalized regulations under ERISA §404(a) that will generally require
sponsors of ERISA-governed retirement plans to provide an initial annual fee disclosure notice to participants
and eligible employees by August 30, 2012. Over the past several months, most employers and their service
providers have built a good understanding of the participant fee disclosure requirements and how to comply.
Now, as the race to compliance readiness is nearing its end, an important and evolving consideration has come
to the fore. That is, are participants actually going to understand the information reported on the fee disclosure
notice?
The primary stated objective of the 404(a) regulations is to provide participants with foundational plan and
investment information to aid them in making well-informed decisions about how they participate in their
retirement plan. Without proper planning, however, this critical objective could be lost amidst a vast sea of
numbers and foreign financial jargon. By anticipating potential 404(a) disclosure confusion and fallout, plan
sponsors can be more certain that the fee disclosure information provided to participants will prove to be
meaningful.
Summary of the 404(a) Regulations
The participant fee disclosure regulations under ERISA §404(a) are one leg of a three-legged retirement plan
fee disclosure stool. The first leg of the stool is the expanded disclosure of service provider fees on Schedule C
of the Form 5500 beginning with the 2009 filing year. The second leg is the service provider-to-plan sponsor
fee disclosure required under the ERISA §408(b)(2) regulations, which were made final after much ado in
February, 2012. The third and final leg is the disclosure of plan and investment-related information by the plan
sponsor to the plan’s eligible employees who have not yet enrolled, active and terminated participants with
account balances in the plan, and beneficiaries who have the right to make investment decisions as a result of

2. MAKING SENSE OF FEE DISCLOSURES … 2
the passage of a beneficial interest in plan assets. 1 The disclosure of this plan and investment-related
information is mandated by the regulations published under ERISA §404(a).
For purposes of context, the investment of plan assets is governed by the fiduciary standards set forth in
ERISA §§404(a)(1)(A) and (B). These bedrock standards require plan fiduciaries to act prudently and for the
exclusive benefit of the plan’s participants in all respects. Today, most plan sponsors delegate the right to direct
plan investments to participants rather than retaining that responsibility under ERISA. While plan sponsors are
not actually deciding how to invest the dollars in a participant’s plan account, they must still prudently choose
the menu of investments from which participants make their investment selections and ensure that applicable
fees are reasonable. The regulations under ERISA §404(a) apply to retirement plans where the right to
investment direction has been passed on to participants.
In the prelude to the ERISA §404(a) regulations, the Department of Labor introduces the objective of the 404(a)
regulations as follows: “Plan fiduciaries must take steps to ensure that participants and beneficiaries are made
aware of their rights and responsibilities with respect to managing their individual plan accounts and are
provided sufficient information regarding the plan, including its fees and expenses and designated investment
alternatives, to make informed decisions about the management of their individual accounts.” This primary
objective of the 404(a) regulations is affirmed by the Secretary of Labor and the Assistant Secretary of Labor in
the associated News Release issued in conjunction with the 404(a) regulations. Stated simply, the objective of
the 404(a) regulations is to ensure that participants have the information necessary to make wise decisions
with regard to their retirement plan accounts. Looking further into the 404(a) regulations themselves, the
massive volume and brain-damaging technicality of the very specific information that must be disclosed to
participants under the 404(a) regulations can cause almost immediate skepticism that this objective will actually
be accomplished.
Plan-Related Information
The three categories of plan-related information required to be disclosed to participants under the 404(a)
regulations are general plan information, administrative expense information, and individual expense
information. This plan-related information must be provided to participants on or before the date that they can
first direct investments and annually thereafter. Each category of plan-related information is more fully
described below.
The 404(a) regulations define general plan information to include six specific pieces. They are:
• Information on how the participant can provide investment instructions;
• An explanation of any limitations on investment instructions, including any investment transfer
restrictions;
• A description of how voting, tender or similar rights may be exercised;
1
For convenience, all of the people who must receive the annual disclosure information under the ERISA §404(a) regulations are collectively referred
to as “participants” throughout the remainder of this paper.

3. MAKING SENSE OF FEE DISCLOSURES … 3
• Identification of all designated investment alternatives offered to participants under the plan;
• Identification of all designated investment managers; and,
• A description of any brokerage windows, self-directed brokerage accounts, or similar plan
arrangements that enable participants and beneficiaries to select investments beyond those designated
by the plan.
With regard to administrative expense information, the 404(a) regulations require plan administrators to provide
information regarding all fees for administrative services to the plan that may be allocated to participant
accounts. These administrative expenses are not reflected in the total annual operating expenses of any of the
plan’s designated investment alternatives. An example of such a fee would be a recordkeeping fee charged by
the administrative service provider. This disclosed information must also include an explanation of the
allocation method of such administrative expenses. For example, the administrative expenses may be allocated
to participants on a pro rata or per capita basis.
Individual expense information includes any fees that may be charged to the participant’s account on a “per
transaction” or individualized basis. For example, distribution, loan and QDRO processing fees, investment
advice fees, self-directed brokerage account fees, transfer fees, redemption fees, sales charges, commissions
and similar expenses must be disclosed if they are not reflected in the total annual operating expenses of any
designated investment alternative.
With regard to individual expense information, the 404(a) regulations also require that plan administrators
provide participants and beneficiaries with a quarterly statement of the actual dollar amount of fees charged to
the participant’s account. More specifically, participants must be provided with a quarterly statement including:
• The dollar amount of the fees and expenses actually charged to the participant’s account during the
preceding quarter;
• A description of the services to which the charges relate; and,
• If applicable, an explanation that some of the plan’s administrative expenses for the preceding quarter
were paid from the total annual operating expenses of one or more of the plan’s designated investment
alternatives (for example, through revenue sharing arrangements, 12b-1 fees or sub-transfer agent
fees).
Investment-Related Information
In addition to the plan-related information described above, the 404(a) disclosure to participants must also
include a hefty dose of investment-related information. Some of the investment-related information must be
provided automatically and some must be provided upon request.

4. MAKING SENSE OF FEE DISCLOSURES … 4
Investment-related information that must be provided automatically includes:
• The name of each designated investment alternative, and the type or category of each (for example,
stable value fund, money market fund, large-cap mutual fund).
• The performance data for each designated investment alternative available under the plan. For
investments where the return is not fixed, the disclosure must include the average total return of the
investment for 1-, 5- and 10- year periods (or for the life of the designated investment alternative, if
shorter) ending on the date of the most recent calendar year. The disclosure must also include a
statement indicating that an investment’s past performance is not necessarily an indication of its future
performance. For investments with a fixed rate of return, both the fixed annual rate of return and the
term of the investment must be disclosed. If the rate of return is adjustable, participants must be so
informed and provided with the current rate of return, the minimum guaranteed rate of return, if any,
and the phone number or website to obtain the most recent rate of return information.
• The name of an appropriate broad-based securities market index and its performance relative to the
plan’s designated investment alternatives over the 1-, 5- and 10- year periods (or for the life of the
designated investment alternative, if shorter). The benchmarks cannot be administered by an affiliate of
the investment issuer, its investment adviser, or a principal underwriter, unless the index is widely
recognized and used.
• The amount and a description of each shareholder-type fee and any restriction or limitation that may be
applicable to a purchase, transfer or withdrawal of the investment. For those investments where the
return is not fixed, the following additional information must be disclosed:
o The total annual operating expenses of the investment expressed as a percentage calculation (i.e.
the expense ratio);
o The total annual operating expenses of the investment for a one-year period expressed as a dollar
amount for a $1,000 investment;
o A statement indicating that fees and expenses are one of several factors that participants should
consider when making investment decisions; and,
o A statement that the cumulative effect of fees and expenses can substantially reduce the growth
of a participant’s account, including an invitation to visit the Employee Benefit Security
Administration’s website for an example demonstrating the long-term effect of fees and expenses.
• A website address providing access to more specific information regarding each designated investment
alternative.
• A general glossary of terms to assist participants in understanding the designated investment
alternatives, or a website address that provides access to the glossary along with an explanation of the
purpose of the website.
After investing in a designated investment alternative under the plan, a participant must receive any materials
relating to any voting, tender or similar rights that are passed on to the participant.

5. MAKING SENSE OF FEE DISCLOSURES … 5
Investment-related information that must be provided upon request includes:
• Copies of prospectuses or similar documents for unregistered investment options;
• Copies of any financial statements or reports, such as statements of additional information and
shareholder reports, or similar material;
• A statement of the value of a share or unit of each designated investment alternative, including the date
of valuation;
• A list of assets in the portfolio of each designated investment alternative that constitutes a plan asset,
and the value of each such asset or the proportion of the investment that it comprises.
Investment-related information must be provided in a comparative format, such as a chart, to help participants
evaluate and compare the disclosed information for each of the plan’s designated investment alternatives. The
comparative chart must be easy for the average participant to understand. The Department of Labor provided a
model comparative chart in the 404(a) regulations. 2
The initial annual 404(a) notice must generally be provided to participants by August 30, 2012. Thereafter,
404(a) notices must be provided to participants on an annual basis. A specific due date for the post-2012
annual 404(a) disclosures is not mandated. Newly eligible participants must be provided with the 404(a)
disclosure prior to their enrollment in the plan. Participants generally must begin to receive their initial quarterly
statements reporting the dollar amount of actual fees paid by November 14, 2012.
The consequences of failing to comply with the 404(a) regulations are severe—the entire plan could be
considered to be a prohibited transaction under ERISA, the fiduciary protections of ERISA §404(c) could be
lost, 3 substantial fiduciary liability could ensue, and the Department of Labor could levy a penalty of up to 20%
of plan assets. Compliance is an absolute must. Thankfully, the Department of Labor has specifically stated
that a plan sponsor will not be liable for the completeness and accuracy of information used to satisfy the
requirements of the 404(a) regulation so long as the plan sponsor reasonably and in good faith relies on the
information received from or provided by a service or investment provider. Since service providers, especially
recordkeeping vendors, will be creating the majority of 404(a) disclosure notices in support of their plan
sponsor clients, this is especially welcomed news for plan sponsors.
Readability of 404(a) Disclosures
A quick read through the specific requirements of the 404(a) disclosures is more than a little daunting. The
Department of Labor’s model comparative chart is four standard pages long with just a few sample investments
for purposes of illustration. Plans with dozens of fund options and/or multiple service providers might expect to
see 404(a) disclosures that could easily span anywhere from 10 to 40 (yes, 40!) pages, or more in the most
2
The model comparative chart may be found at www.dol.gov/ebsa/participantfeerulemodelchart.doc.
3
ERISA §404(c) provides fiduciary protection from liability for investment losses where participants are able to direct their own investments and plan
sponsors who elect its protection comply with specified requirements.

6. MAKING SENSE OF FEE DISCLOSURES … 6
extreme instances. In addition to its length, the model chart uses language that is not common to the average
participant’s vernacular.
Recall that the Department of Labor requires that the comparative chart provided under the 404(a) regulations
be easy for the average participant to understand. Using the Flesch-Kincaid Grade Level Readability Test, a
widely accepted measure of readability, the model chart scores somewhere between 51 and 71 out of 100
possible points, depending on the version and the formatting capabilities of the calculator being used. A score
of 80-89 is considered to be an easy-to-read document. Thus, despite the variety of potential scores that the
model chart may receive under the Flesch-Kincaid Test, the model chart does not score in the easy-to-read
category under any circumstances. At the lower end of the model chart’s scoring range, a score of 50-59
typically marks a fairly difficult to read document.
Using a much less scientific approach to assessing the readability of the model chart, the author of this paper
provided a sample comparative chart from one of the largest retirement plan service providers in the industry to
a population of five participants in 401(k) plans. Each participant was asked the same question: if you received
this information from your employer, would you understand it? Each of the five participants responded that not
only would they not understand it; they probably would not read the entire document before putting it aside in
confusion or frustration.
This informal research is bolstered by the results of the recently concluded 2011 Wells Fargo Retirement Plan
Sponsor Survey. Only 5% of the plan sponsors surveyed said that the 404(a) disclosure requirements will lead
participants to make better choices. This report is particularly interesting since top officials from the Department
of Labor and the regulations themselves state that the primary objective of the 404(a) regulations is to help
participants make well-informed decision. Further, 49% of the survey participants stated that participants will be
confused by the 404(a) disclosures.
Whatever the measure applied, the totality of circumstances would lead most people in the retirement plans
industry to conclude that the Department of Labor’s primary objective of getting the fee disclosure information
in the hands of participants to help them make decisions within their plan is unlikely to be satisfied in the near
term. The confusion that the dissemination of this information is likely to cause will perhaps prompt participants
to ask their employers questions. Ideally, employers will be prepared to respond to those questions in a
meaningful way.
Fee Compression: An Intended Consequence?
In the Fact Sheet accompanying the 404(a) regulations, the Department of Labor estimates that the total
industry cost of implementing and complying with the 404(a) regulations in 2012 is $425 million. Over the 10-
year period spanning from 2012-2021, the cost of complying with the 404(a) regulations is estimated to be $2.7
billion. However, over the same time period, the Department expects that plan fees and expenses charged by
service providers will decrease noticeably to help offset these costs. In fact, between 2012 and 2021, the
Department projects lowered plan fees and expenses to the tune of $14.9 billion in the aggregate as a result of

7. MAKING SENSE OF FEE DISCLOSURES … 7
the 404(a) fee disclosure regulations. Why would the Department expect such a substantial drop in plan-related
fees resulting from the 404(a) regulations?
For the first time in the history of retirement plans, an estimated 72 million participants will see exactly what
they pay in order to participate in their employer-sponsored retirement plan. According to numerous participant
surveys conducted over time, most retirement plan participants believe that they pay nothing in order to
participate in their retirement plan. These 72 million participants who have weathered recent market downturns
and sluggish economic growth will now learn that they pay money in order to save for retirement. This news is
not expected to be popular.
With the advent of explicit baggage fees, handling fees, late fees, restocking fees and the like, our societal
tolerance for incidental fees is constantly being tested. Couple that with mounting skepticism over the financial
practices of “Corporate America” and allegations of corporate greed, and fee tolerance is even further lowered.
Several large banks planning to launch monthly debit card user fees in the fall of 2011 halted their plans after a
veritable consumer uprising against them played out via public and social media demonstrations. Fees often
prompt negative emotional responses, such as confusion (i.e. what am I getting in return for the payment of this
fee?) and annoyance (i.e. why should I have to pay this fee to this wealthy corporation?).
Now that 72 million people will know the exact amount in dollars that they are paying in order to save for
retirement, the Department of Labor expects retirement plan service providers to reduce their fees. In other
words, service providers will be getting naked in front of participants for the first time and they are
consequentially expected to lose a few undesired pounds. Participants will likely have questions/demands once
they see the fees they pay in explicit terms, and long lines may form outside the benefits director’s door.
Since October 2010 when the 404(a) regulations were finalized, the retirement plans industry has in fact seen
dramatic compression in the fees quoted by retirement plan service providers. Based on fee benchmarking
data collected by the Multnomah Group over the prior 18 months, a hypothetical plan that may have once been
charged 0.50% of assets annually is now being charged 0.20%-0.25% of assets annually. Perhaps service
providers are perceptive—they “skinnied down” their fees before participants receive their disclosure notices, in
order to avoid a debit card fee-type insurrection. But at what cost? Will service levels decrease along with fees?
Whatever the case, it is more than rational to conclude that the Department of Labor has an ulterior objective to
decrease fees paid by plan participants. The Department abundantly hints at this less overtly stated mission in
the 404(a) regulations and collateral documents, and in the public remarks of its highest ranking officials.
Compounded over time, a 0.25% reduction in fees has a very meaningful and positive effect on a participant’s
retirement plan account, and the Department understands this well. With a potential retirement saving deficit
crisis on its hands, the Department is seeking to capitalize on all opportunities to increase the number of dollars
accumulated in anticipation of retirement. From a participant’s perspective, this could be a significant ancillary
benefit of the 404(a) regulations.

8. MAKING SENSE OF FEE DISCLOSURES … 8
CONCLUSION
There is little doubt that the 404(a) regulations will change the game. Some sources estimate that 83% of
retirement plan participants are unaware of the fees that they pay under their respective retirement plans.
People who learn that they are being charged fees for the first time tend to have immediate, visceral, negative
emotional responses to this new information. Those reactions are likely to result in a confused and irritated
participant population. Employers who are the most prepared to respond to the myriad of questions and
demands they are likely to receive once 404(a) disclosures are delivered to participants will be the most
successful in quieting potential discontent. A little proactive planning in this regard will go a long way. A
strategy that includes acknowledgement of the participant questions, validation of their concerns and prompt
follow up with any additional, understandable information that can possibly be provided will quickly resolve
participant confusion and anxiety. Employers that use the 404(a) disclosures as a springboard to attempt to
negotiate lower fees with service providers and communicate these efforts with participants will win the day.
Because every plan’s circumstances are different, the information provided in this paper is intentionally general.
Contact your Multnomah Group consultant for 404(a) disclosure fallout planning assistance that is more
specific to your plan.
Multnomah Group, Inc.
Phone: (888) 559-0159
Fax: (800) 997-3010
www.multnomahgroup.com
† This White Paper is not intended to be legal advice and should not be construed as such. Information relayed herein is
representative of the Multnomah Group’s experience and current understanding of the law. While the Multnomah Group has made
every reasonable effort to ensure that the information contained herein is factual, we do not warrant its accuracy. Additionally, this
White Paper does not embody a comprehensive legal study, but rather reflects the information most often sought by our clients. As
the information contained herein is general in nature, you are urged to contact your legal adviser with specific questions related to
your plan.