Mutual fund providers are expecting to make a largely smooth transition when new fee and disclosure requirement take effect for firms that sell investment products into the 401(k) and 403(b) plan markets. Three years in the making, the two sets of regulations from the Department of Labor – one covering disclosures to plan sponsors, the other to participants – aim to make the true cost of service more transparent and the fee differential between providers easier to understand.

The DoL published its interim final regulation on fee disclosure to plan fiduciaries last July. They will go into effect on July 16, affecting recordkeepers, brokers, and third-party administrators that provide services to employees that sponsor any plan that operates under ERISA, including defined benefit pensions, 401(k)s, and 403(b)s. The new participant disclosure requirements will take effect for plan years starting after October 31. That represents the culmination of a policy discussion that began soon after the dot.com crash of 2000, when slumping investment returns and mismanagement of plans at high-flying companies like Enron and WorldCom focused attention on the sometimes convoluted – and costly – inner workings of 401(k)s and 403(b)s.

More comprehensive disclosure requirements will affect an estimated 483,000 participant-directed individual-account plans covering some 72 million workers and holding close to $3 trillion in assets, according to the DoL's latest numbers. The good news for mutual fund providers is that the disclosure regs won't require them to supply much information that they previously had not. In fact, many of them have already begun supplying this data owing to a regulation put in place two years ago by the Securities and Exchange Commission.

That rule requires mutual funds to improve their disclosure by providing investors with a concise summary – “in plain English” – of key information they need to make knowledgeable investment decisions.

The DoL appears to have modeled its disclosure rules based on the work the SEC had already done. Most 401(k) recordkeepers, following the SEC regulation, were already supplying some basic information already, and most 401(k) sponsors were sending out regular updates on paper or maintaining a place for it on their Websites.

Facing the biggest challenge may be providers of investments that compete with mutual funds in the 401(k) market, such as collective investment trusts. They were not subject to the SEC rule change and may not have progressed as far in making their fee disclosure conform to the new standards. But many plan sponsors already require their providers – mutual funds and others – to supply information on fees and descriptions of investments so that the sponsor qualifies for the safe harbor of Section 404(c) of ERISA, which can limit their fidiciary responsibility for participants' investment choices.