Beginning on August 30, 2012, plan administrators of 401(k) plans and other participant-directed individual account plans must disclose certain plan and investment-related information to participants and beneficiaries under final regulations issued by the Department of Labor ("DOL"). The regulation is intended to ensure that all plan participants who have the right to direct the investment of their accounts will have the information they need to make informed decisions about the management of their plan accounts and the investment of their retirement savings.
Which Plans are Subject to the Participant-Level Fee Disclosure Rules?
Participant-level fee disclosures must be made to participants in any participant-directed individual account plan, other than:
- A simplified employee pension; or
- A SIMPLE retirement plan.
Participant-level fee disclosures are not required to be made with respect to any plan where the employer directs plan investments, such as a defined benefit plan.
Who Has The Responsibility to Make the Participant-Level Fee Disclosures?
The plan administrator of the plan.
Which Individuals Have the Right to Receive the Fee Disclosures?
Any participant or beneficiary who has the right to direct the investment of assets contributed to his or her individual account. This includes any employee who is eligible to participate in the plan, even if that employee is not actually enrolled in the plan.
What Types of Information Must Be Disclosed to Participants?
The plan administrator must disclose information in two categories:
- plan-related information and
- investment-related information.
What Kind of Plan-Related Information Must be Disclosed?
Initial and Annual Disclosures. The following plan-related information must be disclosed on or before the date the participant can first direct his or her investments and annually thereafter:
- An explanation of how the participant gives investment instructions;
- An explanation of any plan limitations on giving investment instructions, including any restrictions on transfer to or from a designated investment alternative;
- A description of plan provisions relating to the exercise of voting, tender and similar rights as to a designated investment alternative, and any restrictions on these rights;
- An identification of any designated investment alternatives offered under the plan. A "designated investment alternative" means any investment alternative designated by the plan into which participants can invest their accounts, but does not include any brokerage windows, self-directed brokerage accounts or similar arrangements;
- An identification of any designated investment managers; " A description of any brokerage windows, self-directed brokerage accounts or similar arrangements;
- An explanation of any fees and expenses for general plan administrative services (auditor's fee, recordkeeping) that may be charged against the participant's account which are not reflected in the total annual operating expenses of any designated investment alternative, as well as the basis on which these fees are allocated (i.e., per capita or pro rata); and
- An explanation of any fees and expenses that may be charged against a participant's account on an individual, rather than a plan-wide, basis (such as a loan processing fee) and that is not reflected in the total annual operating expenses of any designated investment alternative.
The above information can be distributed as a standalone document or it can be distributed as part of the SPD or a participant benefit statement. Note, if the required disclosures are part of the SPD or participant benefit statement, these documents must be distributed before the initial investment decision and at least annually thereafter to comply with the fee disclosure timing rules.
If there is a change to any of the annual disclosures, the plan administrator must notify each participant of the change at least 30 days, but not more than 90 days, in advance of the effective date of the change.
Quarterly Disclosures. The following plan-related information must be disclosed to participants on a quarterly basis:
- The dollar amount of fees and expenses for general plan administrative expenses charged to the participant's account during the preceding quarter and a description of the services to which the charges relate;
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.