The DOL’s Employee Benefit Security Administration (EBSA) has been engaged in a 3-prong approach to ensure adequate fee disclosures payable by retirement plans. The first prong came in the form of Schedule C reporting requirement; these requirements took effect for the 2009 plan year. The second prong relates to fee disclosure to plan sponsors. On July 16, 2010, the DOL issued interim final regulations addressing fee disclosure matters by service providers (see Retirement Plan Fee Disclosure Continuum, Benefit Beat, 8/5/10). The third prong relates to participant level fee disclosures.  On October 20, 2010, EBSA issued final regulations, a Fact Sheet, and a Model Chart, relating to participant level fee disclosure. 

Overview of Final Participant-level Fee Disclosure Rules

These new participant level fee disclosure rules apply to all participant-directed plans, including 401(k) plans and 403(b) plans subject to ERISA.  The rules do not apply to individual retirement plans, SEPs, or SIMPLE IRAs.  The rules apply without regard to plan size, and without regard to whether the plan is seeking fiduciary relief under ERISA Section 404(c). 

Also of note, the regulations impose, on the plan administrator, an affirmative fiduciary duty to comply.  However, the plan administrator can rely on a service provider to perform some, or all, of the responsibilities, as long as the plan administrator has done its due diligence in the selection of the service provider. 

The type of information to be disclosed is divided into two main categories:

1. Plan-related information; and
2. Investment-related information.

Plan-related Information

The rules require that general plan information and related expenses be provided to plan participants prior to their ability to make an investment, and annually thereafter.  The types of general plan information include a list of investment options, a description of how and when investment instructions can be given, and a description of any brokerage windows or other methods by which participants can invest in options, external to the plan.

In addition, information must be provided relating to two types of fee disclosures:

1. Fees assessed against all participant accounts, such as legal, accounting or recordkeeping services, and
2. Fees assessed based on the individual participant’s actions, such as loan fees, or fees for qualified domestic relations orders.

Subsequent Disclosures 

• Changes to plan information. If there is a change to any of the information described above, updated materials must be provided not less than 30 days, nor more than 90 days, prior to the effective date of change; or, as soon as reasonably practicable in the event of unforeseen circumstances beyond the plan administrator’s control.    

• Quarterly Disclosures.  A quarterly statement of actual charges or deductions from a participant’s account(s) must be provided.  This quarterly statement must include both general administrative expenses, as well as individual expenses assessed against the participant’s account.

Form of Disclosure

General plan-related information, administrative expenses, and individual expenses can be provided in a summary plan description, or similar document, as long as the required timeframes for distribution can be met; and as long as materials are written in a manner that can be understood by the average plan participant.

Investment-related Information

The plan administrator must provide certain investment-related performance data to participants prior to directing investments under the plan, and annually thereafter.  For investments such as mutual funds, this would include historical data and benchmarking data.  For fixed investments, this would include information relating to annual rates of return and the term of the investment.

Comparative Format Requirement

The final rules require investment-related information to be formatted into a chart, or similar comparison-type format that provides details about each designated investment alternative available under the plan.  Such comparative format must prominently display the date, and include:

1. Plan administrator’s contact information for obtaining additional investment information, such as a copy of the prospectus, financial statements, or reports; 
2. The dated valuation of a share or unit of each designated investment alternative;
3. A list of the plan assets comprising the portfolio of each designated investment alternative;
4. Additional investment-related and performance information available at a designated internet website address; and
5. An explanation of how to request and obtain, free of charge, paper copies of the information available on a website relating to annuity options, or fixed-return investments.

EBSA provides a Model Chart that can be used to satisfy the comparative format disclosure requirement.  The Model Chart is divided into variable investments, fixed investments and annuities. The chart also includes a table of fees and expenses.

Additional Disclosures

Once an individual has invested in a particular option, the individual must be given materials provided to the plan, such as voting, tender, or other similar documentation. 

Further, the participants have the right to request the following documents: 

1. Copies of prospectuses, or, alternatively, any short-form or summary prospectus;
2. Copies of any financial statements or shareholder reports;
3. A statement of the dated valuation of a share or unit of each designated investment alternative; and
4. A list of the plan assets comprising the portfolio of each designated investment alternative, and the value of each such asset or the proportion of the investment which it comprises.

Applicability date.  These rules take effect for plan years beginning on or after November 1, 2011.

What Should a Plan Sponsor Do?

• Begin communicating with service providers to determine what kinds of information will be provided. 
• Determine how this information will be packaged so that it can be provided to plan participants in the time and manner required by the law.

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.