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Fiduciary Blog

Fiduciary Alert! Are You Ready To Comply With Rules Requiring Investment And Fee Disclosures To Participants?

[fa icon="calendar"] Apr 3, 2012 9:00:00 AM / by Ken Ruthenberg

Ken Ruthenberg

Although you already may have gotten wind of these new requirements, we want all of our plan sponsor, plan adviser and plan fiduciary clients and contacts to make sure they are on track to comply with the new participant-level investment and fee disclosure rules scheduled to take effect for some plans as soon as August 30, 2012 (or 60 days after the first day of the first plan year beginning on or after November 1, 2011, if later).

What: The new Department of Labor (DOL) rules require plan administrators of ERISA-covered plans with participant-directed investments to make a number of specified disclosures of plan fee and plan investment information to both active participants (those who are actively directing their accounts) and to inactive participants (those who are eligible to participate or defer, but do not have an account). In general, the rules require the written disclosure of:

  1. The plan's investment options and how participants can direct their investments;
  2. The plan-level administrative service fees that are charged to participant accounts;
  3. Fees that are charged to participant accounts on an individual basis (e.g., loan initiation and fees for investment advice programs);
  4. The dollar amount of fees and expenses that were actually charged to each participant's account during the preceding quarter; and
  5. The investment performance and fees of most plan investment options, shown in a comparative format (the DOL has provided a sample format).

Who: Responsibility for providing the new disclosures falls on the ERISA plan administrator. This is not the plan's third party administrator or contract service provider. In many cases this may be the plan's sponsor. If you are not clear on who the plan administrator for a plan is, let us know.

When: Although the new rules are effective for plan years beginning on or after November 1, 2011, the DOL extended the deadline for providing required disclosures when the DOL finalized its covered service provider regulations. In general, the initial disclosure required to be given to all existing participants in most covered plans (this is everything other than the information mentioned in 4 above, which must be reported quarterly) must be made no later than August 30, 2012. If employees become eligible to participate after August 30, 2012, they must be given an initial disclosure on or before the date they first become eligible. The first quarterly disclosure of actual fees (see 4 above) must be provided to participants by no later than 45 days after the end of the quarter in which the August 30, 2012 disclosure is required (e.g., November 14, 2012 for a plan with a December 31 plan year). Presumably, this means that subsequent quarterly disclosures for a plan with a December 31 plan year would have to be provided no later than February 14, May 15, and August 14.

How: Generally, the new disclosures must be provided to participants in writing. Furthermore, each plan must provide web address for each investment option where detailed investment information may be obtained.

Fortunately, the new disclosures need not be prepared by the plan administrator. It is acceptable for the plan administrator to arrange for the plan's service providers and investment providers to prepare the suggested disclosures and the plan administrator may rely on the information provided, if it can do so on a reasonable and good faith basis. However, it is always the responsibility of the plan administrator to oversee the timely preparation and distribution of the required notices and disclosures.

A word of caution: If your plan is being operated as an ERISA section 404(c) plan, such that the plan's fiduciaries are not intended to be responsible for the consequences of participants' investment directions, you must comply with these new rules or run the risk of losing your 404(c) protection.

<p=>As with our advice on the new service provider fee disclosure rules under ERISA section 408(b)(2), we have prepared more detailed explanations of these rules, along with checklists and worksheets to help you analyze and implement your compliance plan. If you would like more information about these material, or how we can help you to comply, please call us.
Ken Ruthenberg

Written by Ken Ruthenberg