DOL Participant Fee Disclosure Rules
The Department of Labor (“DOL”) recently issued and has now finalized regulations under ERISA §404(a) which are commonly referred to as the “Participant Fee Disclosure Rules” (“Rules”). These Rules require participant-directed qualified retirement plans to issue both an annual participant fee disclosure and quarterly disclosures. For most plans, including calendar year plans, this initial annual disclosure is due on or before August 30, 2012. Further, the new quarterly fee disclosures required under these Rules must be provided by November 14, 2012 for calendar year plans (which will include fees and expenses paid from a participant’s account during the calendar quarter ending on September 30, 2012).
Which plans do these Rules apply to?
These Rules apply to participant-directed individual account plans which are subject to ERISA. Generally, this means any employer-sponsored retirement plan that permits participants to direct investments among a menu of investment options (e.g. 401(k) plans, profit sharing plans, or money purchase pension plans). These Rules do not apply to IRAs, SEPs, SIMPLE plans, or non-ERISA employer-sponsored plans (e.g., owner-only plans where the only participants are the owner of the business and/or his or her spouse). These Rules also do not apply to any employer-sponsored retirement plan which does not permit participants to direct investments, e.g. to a retirement plan where the investments are solely determined by the plan trustees.
Who is responsible for providing these participant fee disclosures?
The plan administrator (usually the employer) is responsible for complying with these disclosure requirements. The Rules make the disclosure responsibility part of the plan administrator’s fiduciary duties to the plan. Although fiduciary penalties target plan administrators, the DOL anticipates that plan service providers will incorporate systems and process changes to accommodate the participant fee disclosure requirements. Employers should consult with their investment services provider to make sure that these participant fee disclosure requirements will be complied with in a timely fashion.
What must plan administrators disclose to participants, and when?
Plan administrators must distribute the fee disclosures to participants at several key times during the plan year:
• Initial and Annual Fee Disclosures. Plan-related information and investment-related information must be disclosed to participants annually beginning with the disclosure by August 30, 2012 (for most plans) referred to above. These disclosures must then be made annually thereafter.
• At Least Quarterly Statements. Certain fee disclosures are required to be provided at least quarterly to participants, unless the participants are receiving such disclosures directly from the investment service providers. These fee disclosures may be included in quarterly benefit statements provided to participants.
• Prior to Changes to Disclosures. Any changes to plan-related information or fees must be communicated to participants at least thirty (30) days, but not more than ninety (90) days, prior to the effective date of the change.
What information must be included in the initial and annual disclosures?
In the initial and annual disclosures, the Rules require the disclosure of certain plan-related information about the participant’s right to direct investments under the plan and the plan’s administrative expenses. The information must identify designated investment options and/or designated investment managers, and must explain how participants may give investment directions. The information must also explain any limitations or restrictions on the ability to direct investments. The information must further explain any general plan administrative fees and expenses and how the charges will be allocated on a plan-wide basis (e.g. pro rata or per capita). Fees and expenses may include legal, accounting and record keeping fees. The information must further explain any individual fees and expenses that may be charged to an individual account, rather than on a plan-wide basis. Such fees and expenses may include: loan fees, QDRO fees, investment sales commissions/loads, redemption fees, investment management or brokerage fees charged directly to a participant’s account, etc. Finally, if the plan offers certain “designated investment alternatives,” the plan must provide a comparative chart containing both performance and expense data, and comparing that data versus a benchmark. In this regard, the DOL issued a model comparative chart which can be obtained from the DOL website.
What information must be included in the quarterly disclosures?
The quarterly disclosures generally include the dollar amount for administrative services or other expenses actually charged to the participant’s account during the quarter.
What are the penalties for noncompliance?
There are no specific monetary penalties for failing to timely comply with these new regulations. However, the regulations provide that if the plan administrator fails to comply, the plan administrator will be deemed to be in breach of its fiduciary responsibilities. This can invite participant lawsuits, DOL enforcement actions, etc.
What do you need to do now?
If you have a participant-directed qualified retirement plan which is subject to these new rules, then you need to immediately discuss with your third-party administrator and/or your investment provider how you will comply with these new Rules.
If we can be of any assistance to you, please do not hesitate to contact us.
*The content of these articles shall not be interpreted or construed as legal advice. These articles are not routinely updated, so if you have any questions or concerns relevant to any topic referenced herein, please contact an attorney.