The U.S. Department of Labor (DOL) recently issued guidance providing defined contribution plan administrators with additional flexibility on the timing requirements for distribution of the required annual fee disclosure to plan participants and beneficiaries. The new rule replaces the 12-month window for the annual disclosure with a 14-month window.

Background

Administrators of 401(k) and other defined contribution plans with participant-directed investments must provide participants and beneficiaries with an annual fee disclosure that includes detailed plan and investment-related information (click here for more information). For most plans, the initial fee disclosure was due by August 30, 2012, with subsequent disclosures required at least once in each 12-month period. 

In response to concerns that an annual August 30 deadline did not coincide with the timing for other participant communications, the DOL issued a Field Assistance Bulletin in 2013 that provided plan administrators with a one-time opportunity to reset the deadline for distribution of the next annual fee disclosure to a date no later than 18 months following the date of the last disclosure, after which the 12-month period would apply (click here for more information). However, the Field Assistance Bulletin did not address the burden placed on plan administrators by requiring distribution of the annual fee disclosure no later than exactly one year after the date of the prior annual disclosure. To meet the strict 12-month deadline, plan administrators might need to distribute the disclosure progressively earlier in subsequent years, and plan administrators might eventually lose the ability to distribute the disclosure coincident with other participant communications. In addition, plan administrators would need to track a shifting deadline, could be discouraged from providing the disclosure earlier than the 12-month deadline (because of the impact on the deadline in future years), and could be forced to include outdated performance information simply because more current information was not available by the 12-month deadline.

New 14-Month Rule

In response to these concerns, the DOL issued a proposed rule and a direct final rule amending its regulations to require that the annual participant fee disclosure be provided at least once in each 14-month period rather than at least once in each 12-month period. With the extended timing requirement, plan administrators must provide the notice by the date 14 months following the date of the prior notice. Plan administrators that wish to distribute the disclosure around the same time each year can now do so without being concerned about missing the deadline by a few days or permanently shifting the deadline to an earlier date.

Effective Date

The amendment is effective for disclosures made on or after June 17, 2015, but plan administrators may rely on the new distribution period effective immediately if they reasonably determine that doing so will benefit participants and beneficiaries. Because the DOL structured the amendment as a direct final rule, it could technically be withdrawn prior to June 17, 2015, if it generates significant adverse comments. However, a delayed DOL implementation date is unlikely, because this regulatory change appears to strike an appropriate balance between plan administrators’ need for flexibility on the timing of participant disclosures and participants’ need for regular, periodic information regarding the fees affecting their retirement savings.