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Legal Updates in ERISA, 
Employee Benefits & Human Resources


ERISA & Employee Benefits 

Estate Planning & Administration

Employment, Labor & Human Resources

Litigation, Corporate & Real Estate

August 2013

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Steve Wilkes, head of our California office, has joined the Advisory Board of Directors of CFA Society of San Francisco, an organization with 4,000 members in the Bay Area, the second largest CFA Society in the county.


The Wagner Law Group website provides comprehensive resources on ERISA and employee benefits; estate planning; and employment, labor and human resources law. Below are links to these resources.


Watch Marcia Wagner speak about a variety of issues on CNN and Fox Business on our YouTube channel.  


Upcoming Events


"Family Limited Partnerships: Latest Cases and Planning Opportunities," Guy B. Maxfield, The American Law Institute Continuing Legal Education Group Web Presentation, August 20, 2013 at 1:00-3:45 PM ET


"What Trustees in Bankruptcy Need to Know About Pension Plans,"  Marcia Wagner, Penchecks 2013 Expert Series Webinar, September 18, 2013 at 2:00-2:30 PM ET


Click here to sign up for the Webinar: "What You Should Know About the Impact of Technology on the Employer-Employee Relationship," David Gabor, September 26, 2013 at 4:00-4:30 PM ET.Click here


"Hedge Fund Manager Considerations for Raising ERISA Capital,"

Stephen Wilkes, CFA Society of San Francisco, October 22, 2013 


Seminars and Presented Papers   


"ERISA Law Update,"  Marcia Wagner, Retirement Alliance, Inc. 2013 Advisor Summit Presentation, July 22, 2013. (Meredith, New Hampshire)


"Capturing IRA Rollovers" and Investment Policy Statement Considerations for Target Date Funds,"

Stephen Wilkes, J.P. Morgan Conference, July 18, 2013. (San Francisco, California)


Publications and Articles


"Lifetime Income Illustrations Come of Age," Marcia Wagner, 401k Advisor, July 2013


"Unfinished Fiscal Fix-But The Cliff Is Still There,"  Alvin D. Lurie, Benefits Link, July 19, 2013


"Buyer Beware: Choosing a 3(16) Fiduciary," Marcia Wagner, Plan Consultant, Summer 2013


 Webinars and Podcasts  


"Affordable Care Act's 'Pay-or-Play' Penalty: How to Identify Eligible Full-Time Employees,"  Roberta Casper Watson,  Webcast, August 1, 2013


"Complying With PPACA,"

Marcia Wagner, Webinar, June 25, 2013


"Compliance Audits: Be Ready Before They Come Knocking at Your Door,"  David Gabor, Webinar, June 13, 2013 




The Wagner Law Group's newsletters employment, labor and human resources law; litigation, corporate and real estate law


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The Department of Labor, in Field Assistance Bulletin ("FAB") No. 2013-02[1] released July 22, 2013, has provided plan sponsors and their service providers with flexibility on when they need to give participants in participant-directed individual account plans the second annual fee disclosure notice.


To learn more about the Annual Fee Disclosure Notice extension and its effect on plan sponsors and service providers, please read the article below.


Additionally, you may have heard about the Yale Law School Professor who sent letters to approximately 6,000 401(k) plan sponsors informing them that, based on data he has compiled for an upcoming research study, their qualified retirement plan may be a "high cost plan." 


To learn more about the professor's findings and his reminders to plans sponsors, please read the article below.


If you have any questions, please don't hesitate to contact me.


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Section 404(a)(5) Annual Fee Disclosure Notice Extension


The Department of Labor, in Field Assistance Bulletin ("FAB") No. 2013-02[1] released July 22, 2013, has provided plan sponsors and their service providers with flexibility on when they need to give participants in participant-directed individual account plans (e.g., 401(k) plans) the second annual fee disclosure notice (the "Notice") due under 29 CFR 2550.404a-5 ("404a-5").


404a-5 requires plan sponsors to communicate the following information to plan participants and plan beneficiaries:

  • general plan information;
  • investment information including a comparative chart; and
  • fee information. 

The Notice was originally required to be provided no later than 60 days after the effective date of the 408(b)(2) regulations (i.e., July 1, 2012)[2] which meant plan sponsors had until August 30, 2012 to provide the initial Notice to participants.   Thereafter, a Notice was required "at least once in any 12 month period" without regard to whether the plan is a calendar or fiscal year plan. 


Accordingly, with the first anniversary of the initial August 30, 2012 date fast approaching, plan sponsors needed to  determine if, to comply with the "at least once in any 12 month period" requirement, a subsequent Notice was due by August 30, 2013.  


However, thanks to FAB 2013-02, plan sponsors can now provide the second Notice no later than 18 months from the date of the initial Notice.  The extension is meant to allow Plan Sponsors to send the Notice at a time that will benefit participants (e.g., by reducing administrative costs or by providing the information at a more relevant time such as open enrollment) or to align it with other participant notices typically made either just before or just after the beginning of a plan year.  For example, if a plan sponsor who provided the initial Notice on August 25, 2012 believes providing the Notice on a different twelve-month cycle would be more meaningful, it can provide the second Notice no later than February 25, 2014.  


Thereafter, Notices would be due once in the 12 month period measured from the date the second Notice is provided and anniversaries thereof.


The one-time election to delay the Notice for up to 18 months also applies to a plan sponsor who timely furnished the first Notice and has furnished the second Notice already.  Under the FAB, this plan sponsor could provide its next Notice (the 2014 Notice) no later than 18 months from the date of the second Notice.  This gives everyone the same opportunity for a one-time "re-set" of the timing for their annual Notice.


If you have any questions on FAB 2013-02, the Notice requirements or your obligations as a plan sponsor or plan administrator, please give us a call. 

[1] The full text of the FAB can be found here:  http://www.dol.gov/ebsa/regs/fab2013-2.html.

[2] The DOL amended its 404(a)(5) regulations at 76 Fed. Reg. 42539 (July 19, 2011) to postpone the effective date of the disclosure requirements until at least 60 days after the effective date of the 408(b)(2) regulations.  


A Yale of a Tale


By now you may have heard about (or received a letter from) the Yale Law School Professor who sent letters to approximately 6,000 401(k) plan sponsors informing them that, based on data he has compiled for an upcoming research study "aimed to measure the relative cost to 401(k) plan participants of menu limitations, excess fees and investor allocation mistakes", their qualified retirement plan may be a "high cost plan."  Rest assured, if you have received this letter there is no reason to panic.  


No reason to panic:  As to the letters themselves, aside from the fact the study is based predominately on fee information from Form 5500 filings for the 2009 plan year, the study also appears to have limited its focus to publicly traded mutual funds and not all investments available under the plans in the study.  And while the Professor rightly reminds plan sponsors that "fiduciary duties are the most stringent imposed by law, and require administrators to act solely in the interest of plan participants", his study fails to consider a significant factor in measuring fiduciary's adherence to duties with regard to plan cost -the value of the services the plan receives in exchange for the fees. 


Despite the flaws in the study, the Yale Law School Professor's letter does serve as a reminder that plan sponsors have certain obligations to monitor and negotiate fees associated with their 401(k) plans.  Plan sponsors should be able to demonstrate they have undergone a suitability analysis and made a determination that the cost of their plan is reasonable in relation to the value of services received by the plan.  If you have not done this analysis recently, now might be a good time to do it.


Plan cost review:  Plan sponsors need to clearly identify and review all of the various services to the plan and what the plan is paying for such services (including any revenue share from investments).  To do this plan sponsors need answers to the following questions: 

  • What are the different fees and services?  Schedule C of your Plan's most recently filed Form 5500 lists the plan's services providers and, for many service providers, the services provided and the fee paid for the services.  Each service provider's service contract and/or fee disclosure should be reviewed for more specificity.  By knowing who is providing the service, the cost of the service and the source of the fee payments, plan sponsors can begin to get a handle on cost and on whether the cost is reasonable in relation to the service provided.
  • Was a benchmark used to measure reasonableness and is it appropriate?  Were current service providers selected as a result of a vendor search?  Were current service providers' fees compared to other service providers servicing 401(k) plans similar in size to yours?  Knowing the market, service providers and industry tools available to determine the appropriate benchmarks against which you can measure your plan's services and expenses is a must.
  • What conflicts exist, if any, with the plan's service providers?  Plan sponsors often rely primarily on information provided by their service providers as to the reasonableness of services, investment options, and fees.  However, plan sponsors must remember service providers may have a commercial, not a "co-fiduciary", relationship with the plan and, thus, may not be impartial.  Accordingly, it is important to know who shares in direct and indirect revenue from plan assets or receives revenue (from another source) due to a relationship with the plan.  Does the relationship between the payer and payee give them the ability to affect their own compensation or that of an affiliate without your approval?  Did an advisor have a material financial, referral or other relationship or arrangement with a money manager, broker, or other entity that may create a conflict of interest in performing services for your plan? 
  • Are the services provided and their fees the result of due diligence?  Has the plan leveraged its bargaining power, if any, to acquire, when able, lower cost funds or services for the plan?  When was the last time the plan sought a request for proposal ("RFP") to determine what other service providers might provide in terms of services and cost?



It's still all about the process.  As has always been the case, a plan sponsor's potential liability lies not in the outcome of the decisions made, but in the decision process itself.  Plan sponsors must be prepared to support their internal decision making, especially on matters involving the reasonableness of plan cost. By asking who is providing services, what services they provide, how they are being paid and from where and to whom the money flows, plan sponsors can begin to get a handle on exactly what is the cost of their plan and answer the most important fiduciary question of all, which is not, is the Plan the absolute lowest dollar cost plan on the market, but rather, is the value the plan receives for its cost reasonable.  If it is not reasonable, the plan sponsor must take action to reduce the plan's cost.


The Wagner Law Group is available to assist you with any questions you have regarding retirement and benefit matters, including reviewing plan services and cost or assisting with RFPs to gauge the market position of your plan.