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Digg On October 10, 2010, the Department of Labor (DOL) published final rules requiring plan administrators to disclose certain fee and investment related information to participants and beneficiaries in participant-directed individual account plans (generally, 401(k) plans) (the Participant-Level Disclosure Rules). On May 7, 2012, the DOL published Field Assistance Bulletin No. 2012-02 (FAB) clarifying some of the most frequently asked questions with respect to the Participant-Level Disclosure Rules. The FAB also provides some clarifying information with respect to the provisions of the DOL final rules regarding service provider fee disclosures to plan fiduciaries (the Service Provider Rules) (see the February 10, 2012 issue of the Benefits eAuthority).
Background on Participant-Level Disclosure Rules
The Employee Retirement Income Security Act (ERISA) provides
that plan fiduciaries must discharge their duties with respect to
the plan prudently and solely in the interest of participants and
beneficiaries. Under the Participant-Level Disclosure Rules, the
plan administrator must, as a part of ERISA's fiduciary
requirements, ensure that participants and beneficiaries are made
aware of certain fees and expenses charged to the plan, as well as
their rights and responsibilities with respect to their plan
investments.
Summary of the FAB
Generally, the FAB highlights the importance of providing clear,
concise information to all participants, and providing that
information in a uniform format, so that participants and
beneficiaries can easily draw comparisons between the investment
options. In addition, the FAB clarifies that participant-level
disclosures should ensure that participants have as much
information as possible regarding the fees and expenses with
respect to the plan. For example, the FAB provides:
- Disclosure of Administrative Expenses. The Participant-Level Disclosure Rules state that plan administrators must provide participants and beneficiaries an explanation of the general fees and expenses that may be charged against plan accounts. The FAB explains that the detail in which the fees and expenses should be described depends on the facts and circumstances. If the fees for a service are known at the time of disclosure, the explanation must clearly describe the fee, the service, and the plan's allocation method. For example: "An annual recordkeeping fee of .12% of the account balance will be charged to each individual account, at a rate of .01% per month." When fees are not known at the time of disclosure, a more general description will suffice. For example: "If the plan incurs any legal expenses, such expenses will be deducted from individual plan accounts on a pro rata basis."
- Revenue-Sharing Arrangements. The FAB clarifies that participants should be notified if expenses will be paid through revenue-sharing arrangements that the plan receives from plan investment options (as opposed to directly from plan accounts).
- Brokerage Windows. Additional guidance on disclosures relating to brokerage windows is provided in the FAB. This additional guidance provides that notices to participants should include: (1) a general description of the brokerage window; (2) an explanation of the fees and expenses that may be charged to an individual's account with respect to the brokerage window (this explanation must be furnished to all participants, regardless of whether or not they elect to use the brokerage window); and (3) a statement of the dollar amount of fees and expenses actually charged to the individual's account in the prior quarter.
- Website Disclosures of Investment-Related Information. The Participant-Level Disclosure Rules provide that certain investment-related information must be provided through a website. The FAB clarifies that the website can lead the participants and beneficiaries to other websites that provide the appropriate investment information, as long as the initial website is "sufficiently specific" to lead participants and beneficiaries to that alternate website. Whether the website is "sufficiently specific" to lead participants and beneficiaries to an alternate website will depend on the facts and circumstances. For example, relevant factors include whether the initial website is user-friendly, or whether it provides a clear description of the information that can be found on the alternate website. In addition, the FAB recognizes that plan sponsors will likely rely on a recordkeeper or other outside source to provide the website and investment information, and as long as the plan administrator "reasonably and in good faith" relies on information received from the outside source, the plan administrator will not be responsible for the completeness and accuracy of the information.
- Comparison Chart of Investment-Related Information. The Participant-Level Disclosure Rules provide that plan administrators must provide participants and beneficiaries with a chart that can be used to compare investment options. The FAB clarifies that multiple charts can be used, so long as the charts are designed to facilitate a comparison among the investment options and are delivered together to each participant and beneficiary.
- Form of Disclosure. The FAB clarifies that the disclosures required under the Participant-Level Disclosure Rules may be furnished as stand-alone documents or along with, or part of, other documents (for example, as part of a summary plan description).
Effective Date and Transition Rules
For most plans (including calendar year plans), the initial
annual disclosures under the Participant-Level Disclosure Rules
must be furnished to participants and beneficiaries no later than
August 30, 2012. In addition to the annual disclosures, the
Participant-Level Disclosure Rules require quarterly disclosures.
The first quarterly disclosures (for calendar year plans) must be
provided by November 14, 2012.
In the FAB, the DOL specifically recognized that many plan
administrators and service providers have already taken action to
comply with the new rules and that it may be difficult and costly
to make further adjustments in advance of the July 1, 2012,
effective date for the Service Provider Rules and August 30, 2012,
effective date for the Participant-Level Disclosure Rules. However,
the DOL concluded that further transition relief is not warranted,
but that the federal agency will analyze whether plan
administrators and covered service providers have acted in good
faith based on a reasonable interpretation of the final regulations
in determining whether the applicable notices comply with the
Service Provider and Participant-Level Disclosure Rules. If found
to be in good faith and upon a reasonable interpretation,
enforcement action will not be taken if the plan administrators and
covered service providers take further action to comply with the
FAB in future disclosures.
Conclusion
Generally, a plan's service provider will prepare the participant-level disclosures. However, it is the plan administrator's fiduciary responsibility to ensure that the disclosures are timely, accurate, and complete (with some exceptions for good-faith, reasonable reliance on third-party information). Thus, plan administrators should, along with benefits counsel, thoroughly review the participant disclosures.
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.
Specific Questions relating to this article should be addressed directly to the author.
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