If you sponsor a 401(k) plan for your employees, April 1st will be an important date to remember. UPDATE: The Department of Labor has extended the deadline to July 1st, 2012. This is the deadline for plan sponsors to obtain from plan advisors newly required disclosures stating specifically what services they’re providing and the cost of each. Small businesses will get critical information on the true cost of their employee retirement plans — and the unnecessary fees that they are paying.

Quoting an article by Frank Armstrong III for the Washington Post On Small Business: "It isn't unusual to find 401(k) plans with total costs paid by the participant exceeding 3 percent of account total annually, with investment choices limited to subpar proprietary funds, and with payments to the various providers not related to services rendered.

"Confusion about who provides what service, how much is their direct and indirect compensation, and whether the various parties are acting in a fiduciary capacity is the rule. The combined impact on participant accounts and retirement funding is devastating. For instance, a 1 percent unwarranted cost might impact final accumulations over an employee's career by 30 to 50 percent.

"However, without critical information, comparisons and informed decision making are impossible. The new regulation — DOL Reg 408(b)(2) — aims to fix that. By April 1, plan sponsors must disclose their costs. By May 31, according to another new regulation, the same information must be shared with plan participants.

"If you are a plan sponsor each service provider must supply you with a revised service agreement that includes:

• A complete description of the services they provide.
• A full disclosure of the costs of each service.
• A disclosure of any direct or indirect compensation they receive from associated providers.
• Information on whether they assume fiduciary responsibility for each function (Hint: if the service agreement does not specifically assume fiduciary responsibility for a function, they are unable or unwilling to assume that liability.)
• Any potential conflicts of interest and how they are managed and mitigated.

"Red flags might include:

• A total cost for all services including investment advice, recordkeeping/administration, fund fees, transaction costs, custody or trustee fees and any mortality and expense charges that exceed 1.5 percent.
• Any single fee disproportionate to services rendered or economic value.
• Direct or indirect compensation between the parties which might cause conflicts of interest.
• Revenue sharing not fully accounted for and credited back to the plan.
• Failure to specifically assume fiduciary status by investment advisers, consultants and other plan providers.

In addition to obtaining the fee disclosures, the new rules also require sponsors to determine whether plan advisors are fiduciaries — a legal/regulatory status meaning that these advisors always put clients' interests ahead of their own.

This article by Anthony Kippins for Smart Business discusses the fiduciary role in more detail. Under the Employee Retirement Income Security Act (ERISA) of 1974, employers (plan sponsors) are themselves fiduciaries, with all of the accompanying responsibility, accountability and liability. Many plan sponsors have always believed that their long-time advisors are fiduciaries, but this simply isn't true. Typically, the main advisory role in a 401(k) plan is played by a broker. However, few brokers can be considered fiduciaries, as they often have conflicts of interest, such as business relationships with financial institutions that provide investments for the plan. It's important for plan sponsors to understand how the dynamics of the 401(k) disclosures will put an increased regulatory and legal burden on them as fiduciaries.

Want a straightforward guide to your obligations as an employer and how to keep your employees informed of their true retirement plan costs? Try this guide from the U.S. Small Business Administration.

Finally, here is a complete guide to 401(k) plans for small businesses from the U.S. Department of Labor.