The Department of Labor has modified its final regulation requiring plan administrators to disclose certain plan and investment-related information, including fee and expense information, to participants and beneficiaries in participant-directed individual account plans. The current regulation requires that this information be furnished on or before the date a participant can first direct investments and "at least annually thereafter." The current regulation provides that the term at least annually thereafter "means at least once in any 12-month period, without regard to whether the plan operates on a calendar or fiscal year basis." Further guidance indicated that the 12-month period meant no more than one year exactly from the prior annual disclosure. The new rule replaces the 12-month period with a 14-month period providing that the term at least annually thereafter "means at least once in any 14-month period, without regard to whether the plan operates on a calendar or fiscal year basis."
This is welcomed relief from the strict 12-month rule. The DOL received comments from several organizations representing employers, plans, recordkeepers and service providers. These commentators raised multiple practical and logistical concerns regarding the 12-month period. Among other things, there were concerns that: (1) the strict 12-month definition may prevent plan administrators from consolidating this annual disclosure with other annual plan disclosures, (2) recordkeepers would have to track the disclosures on a plan-by-plan or participant-by-participant basis and (3) the timely delivery of certain investment information from investment vendors would be challenging due to the obligation to prepare comparative charts. Commentators also noted that the deadline would continually creep forward for all future years when there is early compliance during the current year. The change to a 14-month period should provide plan administrators with greater flexibility in timing the annual disclosures and help alleviate many of these concerns.
The new rule is effective June 17, 2015 unless the DOL receives significant adverse comment. As a practical matter, the new rule is currently effective due to adoption by the DOL of a temporary enforcement policy that allows plan administrators to immediately rely on the rule.
Purpose of the Fee Disclosure Requirements
The purpose of the participant-level fee disclosure regulation was to improve the transparency of fees and expenses to workers in participant-directed plans, such as 401(k) plans. Among other things, plan administrators must provide plan-related information (e.g., the plan's structure, administrative expenses charged to all accounts, and individual expenses charged based on an individual participant's actions) and investment-related information (e.g., historical investment performance, benchmarks, fees and expenses, a website address to provide additional information, and a glossary of terms). The regulation also requires that a plan's investment option information be provided in a comparative format.
Importance of Legal Review of the Notices
The regulation provides plan administrators protection from liability for the completeness and accuracy of information provided to participants if the plan administrator reasonably and in good faith relies upon information provided by a service provider. To ensure reasonable and good faith reliance, the plan administrator should closely review the notices it receives. Plan administrators should also consult with legal counsel to ensure that the disclosures they furnish to plan participants and beneficiaries are properly structured and are complete in accordance with the regulation's complex and detailed requirements.