On Tuesday, July 22, 2008, the U.S. Department of Labor (“DOL”) issued proposed regulations designed to provide participants in participant-directed individual account plans (including 401(k) plans) with sufficient information in order to make informed investment decisions. When finalized, the proposed regulation will be effective for plan years beginning on or after January 1, 2009.
According to the DOL, there are an estimated 437,000 participant-directed individual account plans, covering an estimated 65 million participants and holding $2.3 trillion in assets. Many of these plans allow participants and beneficiaries to direct all or a portion of the assets held in their individual accounts. This increased responsibility for one’s own retirement has led to a growing concern that participants and beneficiaries may not have access to, or may not be considering information critical to making informed investment decisions, to include information on investment choices, fees and expenses.
Although the above investment choices, fees and expenses disclosures are already being made by plans that elect to comply with the requirements of ERISA Section 404(c), compliance with the Section 404(c) disclosure requirements is voluntary and does not extend to participants and beneficiaries in all participant-directed account plans. Therefore, the DOL has issued proposed regulations that would require all participant-directed plans to provide this information.
As a result, the proposed regulations establish uniform, basic disclosure requirements for such participants and beneficiaries, without regard to whether the plan in which they participate is a 404(c) compliant plan, which must include a description of the fees and expenses. Further, investment information must be presented in a chart or similar format to make comparisons easy. The DOL has included a model chart in the proposed regulations to assist plan fiduciaries with compliance, while also giving plan fiduciaries the ability to design their own charts or comparative formats. According to the proposed regulation, these required disclosures must be provided when the participant first becomes eligible to participate, and annually thereafter.
Frank Del Barto comments that this proposed regulation is another indicator of the trends in the 401(k) industry. As the various lawsuits alleging excessive plan fees and expenses continue and the DOL issues new regulations governing investments, fees and expenses, Frank recommends that plan fiduciaries review their 401(k) plan investments, fees and expenses on a regular basis. Notwithstanding the new proposed regulation, Frank reminds plan sponsors that, under ERISA, they retain their fiduciary duties to select and monitor investments offered under the plan.