Generally, by August 30, 2012, qualified retirement plans subject to ERISA that provide for participant directed accounts must make specific disclosures to participants regarding plan fees and certain investment information. Covered service providers were required to provide plan sponsors and administrators with information as to their compensation and possible conflicts of interest by July 1, 2012.
The Department of Labor (DOL) previously issued regulatory guidance1 and a field assistance bulletin setting forth a complex set of rules for the reporting of fund performance and fees, depending upon the investment options available under the plans.
Plan fiduciaries should now be in the process of evaluating the information received from their service providers to determine the reasonableness of the fees being charged (if those fees are paid out of participant accounts or plan assets generally) and of compiling the fee disclosure and investment performance information for distribution to participants. If sufficient information was not received from a service provider, the responsible plan fiduciary must request the additional information which the service provider must then furnish within 30 days. If the service provider does not provide the additional information within 90 days of the request, the fiduciary must determine whether to remove the service provider and must also advise the DOL within 30 days to avoid engaging in a prohibited transaction and triggering imposition of an excise tax. Additionally, if a service provider determines that it submitted inaccurate information, it must send a correction within 30 days of discovery.
Unfortunately, the DOL’s initial guidance pertaining to so-called “brokerage windows” and “self-directed brokerage accounts” as an investment option created considerable alarm as to how to achieve compliance with the disclosure rules.2 However, on July 30, 2012, the DOL issued a revised field assistance bulletin clarifying that investments selected and held by participants in self-directed brokerage accounts are not designated investment alternatives subject to the detailed disclosure rules.3
Also, on July 13, 2012, the DOL announced a revised mailing address and web-based submission procedure by which plan fiduciaries are to notify the DOL about noncompliant service providers.4
The DOL rules also require plans to provide quarterly statements to participants disclosing the fees and/or expenses charged to their accounts. These statements generally must be provided within 45 days after each quarter, with the first such statements being due by November 14, 2012. The statements can be included with or incorporated into a participant’s quarterly benefit statement.
Obviously, these new requirements impose additional responsibilities on plan fiduciaries subjecting them to additional potential liability for breach of fiduciary duty and also exposing the plan and service providers to potential prohibited transactions for noncompliance and related excise taxes. Plan fiduciaries will need to make sure that contracts with service providers are in place and current to avoid the service relationship being regarded as a prohibited transaction.
The DOL has indicated that in enforcing these new requirements, it will take into account whether plan administrators and covered service providers have acted in good faith based upon a reasonable interpretation of the new rules.
Our understanding is that most third-party administrators are assisting plan fiduciaries with preparation of these necessary disclosure notices.